FindLaw KnowledgeBase
Published: 2009-11-23
The Loan Modification Process
There are so many homeowners that have been pinched by the simultaneous collapse of the housing market and the economy in the past year, that the federal government and banks launched several mortgage modification programs to help stem record amounts of foreclosures.
A loan modification is much like a mortgage refinance in that the objective is to find you a more affordable mortgage payment. The main difference is that instead of looking for a "new" loan, in most instances, you will just simply "modify" the terms of you existing mortgage. Refinancing your existing mortgage to obtain a more affordable mortgage payment could still be an option if you are unable to afford your existing mortgage loan. However, for an increasing percentage of homeowners, it is not possible to refinance due to decreasing home values and the tightening of loan requirements. Although you can seek to modify your mortgage without representation, you can also retain a reputable and experienced company or law firm to represent you through this process.
In almost all cases, a loan modification is recommended to homeowners who are experiencing a financial hardship that is preventing them from making their monthly mortgage payments. Your eligibility to modify your mortgage and the rate of success depends on several factors.
First, you need to prepare the appropriate document. If applicable, you will need to make copies of two months of bank account statements, two months of pay stubs, a home appraisal, a recent tax return and a financial hardship letter. The hardship letter is very important. It is your chance to explain your financial hardship any why you believe that without the modification, you will not be able to afford your mortgage payment. You also need to prepare a monthly budget (your monthly income and your monthly expense) and show that you have had a material (significant) change in your financial circumstances. For example, you would need to show that your income is currently less or that your necessary expenses are higher.
Second, you need to demonstrate to the bank that you are able to pay on the new modified loan terms and that the bank would be better off modifying your loan. Banks, like other businesses, are in the business to return a profit. Consequently, your objective in presenting your loan modification request is to show that it is in the best interest of the bank to modify your loan. So, if you have a very high amount of equity in your home or if your income is so low that you would not be able to afford even a reduced mortgage payment, then you have a small likelihood of successfully modifying your mortgage loan.
Today, almost every major bank has a mortgage modification or ?loss mitigation? department to handle a record amount of modification requests. If you are over 60 days late on your mortgage or if you are facing a significant financial hardship, you owe it to yourself to at least learn more about government-backed or private mortgage modification programs that will help you stay in your home and avoid a possible foreclosure. Because of the size of the mortgage crisis and the impact it is having on the economy the government has decided to act by budgeting billions of dollars to assist struggling homeowners. This money is a part of the greater recovery package that has been on going.
Recently, our government set up the Home Affordable Refinance Program, or HARP, and the Home Affordable Modification Program, or HAMP. If you are behind in your monthly payments and think a mortgage refinance or loan modification would help you should contact your lender and enroll in one of these programs. Since the programs are being administrated by lenders directly they have all the information regarding eligibility and application procedures. They can help you find a mortgage relief option.
To qualify for refinance or modification you would need to speak to your lender who will review your borrowing situation and current mortgage agreement to determine what options are available to you. Many lenders who would not otherwise offer assistance to anyone are currently doing so as a result of the government programs.
To qualify for the HARP program and refinance your mortgage, you must be the owner of a one to four unit property. The mount you owe on your mortgage compared to the value of your home is also important. If your home is worth at least 125% of the outstanding balance of your home you could be eligible. Your current mortgage payment status is also important for a mortgage refinance.
Again, considering the enormous number of mortgage modification applications currently pending and considering the complexities of certain aspects of the mortgage modification process, it may be best to seek an experienced professional to assist you in this process.
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