Understanding Mortgage Modification

Last year alone, mortgage modification has helped thousands of homeowners avoid foreclosure and stay in their homes. And with the economy still going down, thousands more are expected to try their luck in the following months. But what does mortgage modification really mean, and how can it help you?

Mortgage modification explained

Mortgage modification is a process wherein you talk your lender into lowering your monthly payments, either by reducing the interest or switching to a more stable payment plan. Most companies offer mortgage modification through their Loss Mitigation department. As the economy puts more people in default, many lenders have also launched mortgage modification programs to assist homeowners in financial crisis or those with sub-prime loans that have recently reverted to regular rates.

Getting a mortgage modification

The main requirement for a mortgage modification is a hardship letter explaining the circumstances of your default. Here you have to give full details of your situation, especially why you fell behind and how you plan on getting back on track. You also have to justify your request for a mortgage modification—you have to convince the bank that you can continue with the payments once the loan is modified.

Next, you’ll need to have a source of income. Different lenders have different standards, but mortgage modification will only make sense to them if you have the means to keep it current. Along with your hardship letter, you’ll need to provide proof of your financial capacity, including pay stubs, tax returns, and recent bank statements. Your lender should give you a more specific list, along with the forms.

Mortgage modification types

Interest reduction is easily the most popular type of mortgage modification, especially in the past two years. It basically involves a decrease in your current interest rate, which significantly lowers your monthly payments. It’s also possible to have an adjustable-rate loan refinanced into a more stable 30-year fixed-rate plan, or spread out the payments over a longer period to make them more affordable. You’ll have to work out an arrangement with your lender to see which works for both parties.

Recent legislations have also made way for principal reductions for homeowners in bankruptcy. This means that if the circumstances allow, a bankruptcy judge can directly reduce your total loan amount and lower your debt burden. You may qualify for principal reduction if you have previously been denied a mortgage modification, or if your current mortgage modification does not bring your debt down to the government standard of 31% of your income.

Getting professional help

Getting a mortgage modification isn’t easy, especially now that more homeowners are sending in their applications. To improve your chances, you may want to work with a mortgage modification attorney. He or she knows the market better and can talk directly with the lenders. They can also use current lending laws to give you more leverage for negotiations, which can ensure better mortgage modification deals.

There are lots of mortgage modification companies out there, but not all of them are reliable. Make sure to find an attorney-backed firm with a good track record and established contacts in the area. After all, when you’re already facing foreclosure, you need all the help you can get—and the best place to find it is with the right professionals.

Loan Modification Case Studies