Loan Modification – Mortgage Modification Tips & Tricks

Homeowners having trouble keeping up with monthly mortgage payments have an option that is gaining in popularity: mortgage loan modification. Loan modification involves modifying your existing mortgage to a lower interest rate and/or extended term, thereby reducing monthly mortgage payments.

Mortgage loan modification differs from refinancing in that refinancing gives borrowers a new loan. Refinancing involves more paperwork and more strict eligibility requirements. Loan modification simply changes the existing loan. The purpose of both loan modification and refinancing is to help troubled homeowners avoid foreclosure and remain in their homes.

A Temporary Solution
Unlike mortgage refinancing, which involves a new loan and a locked rate for the life of the new loan, loan modification may only be a temporary solution. After five years, the modified (lowered) interest rate may gradually increase to a set maximum rate. Most lenders recommend refinancing to homeowners who can qualify for it. They suggest loan modification to homeowners who currently have financial strain and may already be late on their monthly mortgage payment.

What are the First Steps?
First, you will need to determine which lender holds your mortgage. Simply look on your mortgage statement to find this information. Then, contact the lender and inquire about the various loan modification programs, including the Making Home Affordable Loan Modification Program and the Federal Housing Finance Agency Program. Next, you will need to provide the following documentation to the lender:

• a letter explaining your current financial situation;
• income and employment verification, so the lender knows you’ll be able to make the modified mortgage payment;
• a detailed monthly expense report.

Loan Modification Eligibility Requirements
Some homeowners take advantage of the loan modification system and apply for mortgage modification when it’s not financially necessary. Therefore, most lenders require that you:

• show documented proof of financial difficulty or change (e.g. recent job loss);
• have made a solid effort to fulfill your mortgage payments on time;
• own and occupy the home in question as your primary residence;
• are cooperative and honest about your financial situation, needs, and budget;
• are currently late on your mortgage payment;
• provide all necessary documentation;
• have not filed for bankruptcy.

Avoiding Foreclosure is Good for You, Your Bank, & Your Neighbors
It’s in the best interest of the bank to help homeowners avoid foreclosure. This is because a loan in default or a foreclosed home costs banks a lot of money. Avoiding foreclosure and remaining in your home is also good for the economy. Too many foreclosures in a neighborhood, town, or city significantly lower the value of other homes in the area.