Mortgage Loan Modification

Why a Mortgage Loan Modification Versus a Mortage Refinance?

Mortgage Loan Modification: The ins and outs you need to know when looking into home loan modification.

Are you overwhelmed by your mortgage payments? Has a major hardship or life event changed your ability to make your mortgage payment? This can be a depressing and helpless feeling. Good news is, hope (and help) is not as far away as you may think.

What is a Loan Modification?

A loan modification is much like a mortgage refinance with the objective to find a more affordable mortgage payment depending on your financial situation. Sometimes you find the term 'modified refinance' instead of mortgage loan modification. The primary difference is that instead of looking for a "new" loan you will just simply "modify" the terms of you existing mortgage.

Why a Mortgage Loan Modification versus a Mortage Refinance?

Refinancing your existing mortgage to obtain a more affordable mortgage payment could still be an option. Unfortunately, especially because of dropping property values, for an increasing number of homeowners it is not. That is precisely what loan modifications are for - the homeowner that has incurred a financial hardship that prevents other mortgage refinance or payment options.

In most cases, a loan modification is recommended to homeowners that have a financial hardship that is preventing them from making their monthly mortgage payments. Most of those who are eligible for these types of mortgage modification programs have already missed one or more payments.

Am I eligible for a Loan Modification?

This will vary depending on who services (i.e., who you send your mortgage payment to each month) your mortgage. However, most follow very similar qualification criteria. These are the most common loan modification qualification standards:

Experienced a documented hardship or change in financial circumstances
Missed three payment (90 days delinquent) or more
Owns and occupies the property as a primary residence
Not filed bankruptcy

Other important factors that can effect your eligibility:

Do not purposely default to get a loan modification
Make sure you are responsive in working with your lender

Since many of the programs do vary in how they work, you should contact your lender and advise them of your hardship and get more information.

Where can I get a Home Loan Modification?

Really the only place where you can get a mortgage loan modification is through the lender (also called servicer) that currently holds your home mortgage. Confused as to who this might be? Well, you are not alone. In today's mortgage market, where mortgages are bought, sold, and packaged up into securities for Wall Street, this part can be the trickiest one in the home loan modification process.

The best place to start, is your mortgage coupon book or your monthly mortgage statement which shows the receipient of where you send your mortgage payment each month?

Each mortgage lender or servicer may have different mortgage loan modification programs and processes available. In addition, often the staff at these companies have little training to handle a loan modification inquiry.

This is where getting a home loan modification can become quite challenging. Seeking expertise in streamlining your loan modification process can often save you a lot of frustration and money.

What do I need to show to the lender?

Your lender is in the business to return a profit to their shareholders, just like any other business. 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.

What might support your modification request? Here are a few hints for information that you should be able to show your bank:

You have had a material change in your financial circumstances
You have made every effort to make your mortgage payments
You have been cooperative and responsive in working with them
You are not in any way purposefully defaulting to get a loan modification
You are willing to be open, honest, and provide all necessary documentation

Remember, your lender is essentially giving you a new loan after taking a loss on the first one. You need to demonstrate that you are able to pay based on those new, modified loan terms.

What documents will my lender ask for?

Your mortgage loan modification package is going to be the most important part of your loan mortgage modification efforts. Again, the required content and process for packaging the information for your lender's consideration will vary, but the critical elements are typically the same. Here is an example of the documents you will probably require:

A letter documenting and explaining your hardship
Proof of current income and capability to make the modified loan payments
A detailed monthly expense report or budget

The principal purpose of the mortgage loan modification package is to provide your lender with sufficient documentation to evaluate the risk in modifying your home mortgage. The main question your lender is trying to answer is, if you can pay the new modified mortgage payment, and will you.

Why would a lender modify my home mortgage loan?

Simply because it is in the best interest of the bank / mortgage company. As you attempt to inquire about a mortgage loan modification do not confuse this transaction with an altruistic act of kindness. It is fundamentally a transaction that makes more business sense than the alternative, which would be you defaulting on the entire mortgage and costly foreclosure proceedings.

Unfortunately, it is also a product of the current economic conditions. There are so many homeowners that have been pinched by the simultaneous collapse of the housing market and the economy. This creates unique circumstances. Modifying your home mortgage and to keep you in your home, benefits the bigger economical picture.

Loan Modification Programs

As mentioned before, mortgage loan modification programs are just becoming mainstream and therefore there is little to none standardization. The details of loan modification programs that you may be able to qualify for will start at your lender or with a loan modification counselor that can guide you.

Here are a few of the most prevalent loan modification programs and resources:

The White House/Treasury Loan Modification Program

The Obama administration, under the guidance of the US Treasury, has created one of the most inclusive home loan modification programs to date. This mortgage modification program not only helps borrowers in a current financial stree, but it is also there for good paying homeowners that think they may have challenges in the future or have lost significant equity in their homes due to the housing market crisis and dropping home values.

You can learn more about this program at: FinancialStability.gov - Making Home Affordable

The IndyMac Federal Bank Loan Modification Program

IndyMac Bank was one of the first financial institutions to broadly offer home loan modifications to their mortgage customers. After the FDIC took over IndyMac, it became the first test bed for an extensive loan modification policy. You are eligible for this loan modification program, if IndyMac Federal Bank / Lenders hold or service your mortgage.

You can learn more about this program at: FDIC Loan Modification Program for Distressed IndyMac Mortgages.

Federal Housing Finance Agency Loan Modification Program

The most recent of the loan modification programs was the one offered by the Federal Housing Finance Agency (FHFA), the supervisory regulator of Fannie Mae and Freddie Mac. This loan modification program applies to any mortgage held or serviced by Fannie Mae or Freddie Mac.

You can learn more about Fannie Mae and Freddie Mac loan modifications in FHA Refinancing.

Major Lender's Loan Modification Programs

The largest banks in the US are all offering aggressive loan modification programs and in some cases issuing foreclosure mortatoria. These programs are expected to proactively modify hundreds of thousands of mortgage loans.

You can learn more about Citigroup's (Citimortgage) loan modification programs at: