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Mortgage loan modification: Keeps foreclosure away

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 13th Nov, 2007 03:08am
If you're facing financial hardships and almost on the brink of foreclosure, then you can negotiate with your lender for a workout plan to avert foreclosure. You have few options available before you to avoid foreclosure. These options are deed in lieu, short sale, forbearance and of course loan modification.


What is a loan modification program?

Mortgage loan modification is a program where your lender agrees to reduce your mortgage rate, extend the loan term, change the type of the loan etc in order to lower down your monthly payments.

Are you eligible for mortgage modifications?

You may be eligible if:
  • You're at least 3 months delinquent on the loan.
  • You took out the loan more than 12 months ago.
  • You have stable income.
  • The property has not been sold at a sheriff's sale.
  • The property is in good physical condition.

What are the different loan modification programs?

There are a few modification programs which have their unique features. Here we briefly discuss about 2 most prevalent programs.

Treasury Loan Modification Program
This program has been designed by the Obama administration in association with the US Treasury. This is a very inclusive program in the sense that it is not only helping the homeowners currently in financial difficulties but also assisting the homeowners who have lost significant equity in their homes and who are foreseeing tough financial times ahead.

Federal Housing Finance Agency Loan Modification Program
This is the newest mortgage modification program offered by the Federal Housing Finance Agency (FHFA). FHFA serves as the supervisory regulator of Freddie Mac and Fannie Mae. This program is only applicable to the mortgages held by Freddie Mac and Fannie Mae.

When is loan modification right for you?

Loan modifications are right for you when:
  • You have experienced a long-term reduction in income.
  • Your monthly expenses have increased.
  • You don't have enough income to pay off mortgage dues.

What are the benefits of loan modification program?

This mortgage program alters the terms and conditions of a loan that has been agreed upon between you and your lender. Some of its benefits are listed below.
1.  Averts foreclosure
With this you can avoid the severe negative consequences of foreclosure and short sale.
2. Restores credit score
With this you can protect your credit score. Foreclosure damages your score badly and it remains on your credit report for around 7 years.
3. Lowers principal balance
Principal balance is the amount of the loan amount (without interest) that has to be still repaid. Sometimes, be negotiating with the lender, you can lower down the remaining principal balance.
4. Reduces rate of interest
This mortgage program may help you lower down the rate on the loan. This in turn makes payments more affordable for you.
5. Extends the loan term
Loan modification may extend the term of the loan. With extension of the loan term, rate gets lowered. This actually helps you make payments easily.
6. Converts ARM to FRM & vice versa
This offers you the chance to convert an adjustable rate mortgage (ARM) to a fixed rate mortgage (FRM) and vice-versa. You may be willing to switch to the safety of making fixed payments offered by FRM from your existing ARM. Again, the rate on your existing FRM may be too high. In such case, you may want to convert FRM to ARM.
7. Waives off late charges
Your late charges may sometimes be waived off by your lender.

What should you remember at the time of loan modification?

While negotiating on a mortgage modification, you should keep in mind the following points:
  1. Check out your financial health: You need to review your finances carefully. Lender may ask a personal financial statement from you. You need to keep that ready. Your financial statement should contain a comprehensive list of all your expenses such as credit card bills, utility bills, food expenses and other financial obligations. You should estimate the average expenses on each item for the 3 months in order to better assess your financial health.

  2. Prepare a hardship letter: In order to apply for a loan modification, you need to prepare a hardship letter . The hardship letter should satisfactorily explain the reasons behind your inability to pay off the mortgage. It should also explain why you are looking for loan modification.

  3. Gather necessary documents: Before offering you a mortgage modification deal, lender asks for certain documents. You need to keep these documents ready. These documents include :
    • Your bank statements and pay-stubs of last 2 months
    • W-2 form of last 2 years in support of your annual wage and taxes
    • 1040 Form of last 2 years as a proof of annual income tax returns
    • Latest mortgage statements
    • Hardship letter
    • Current property tax statements, if available
  4. Intimate your lender about your position: It is wise to intimate your lender about your financial position. If you are unable to keep up with the mortgage payments, lender may offer you a loan modification program. But, for that you need to contact your lender

  5. Complete the necessary paperwork: Before approving your loan modification appeal, lender sends a financial worksheet to you. You need to fill up that worksheet carefully and send it to the lender along with other necessary documents. After receiving all these, lender assesses your financial health and determines whether you can repay your mortgage after modification.
    What you need to show is that you are still able to repay your mortgage even if you are not able to meet your current monthly payments.

  6. Get a written agreement:   If the lender agrees to modify your loan, you should obtain a written confirmation from the lender. Mere verbal confirmation won't suffice .

  7. Follow the stop gap repayment arrangement: If you apply for loan modification program, lender can't offer it to you with immediate effect. It requires some time (maximum of 60 days) for the lender to make the offer. This time gap is required to check your financial statements, loan status and other documents. During this time, lender wants you to follow a stop gap repayment plan.
Not all the mortgages are ideally suited for modification. If a loan carries high rate in relation to the current market rate or if the homebuyer has a low loan-to-value (LTV) ratio, then it may be appropriate to modify a loan.

What are the outcomes of a mortgage modification?

  • You can keep up with mortgage payments.
  • You can convert your ARM into a fully amortized FRM.
  • The principal, interest, taxes and insurance (PITI), may be or may not be included in the current loan balance.
  • If the past dues are added, the modified principal balance amount may be more than 100% of the LTV of the original principal balance.
  • Modified loan balance may include administrative charges caused due to the cancellation of foreclosure.

How much time does loan modification take?

You have to wait several hours to file your loan modification appeal. When your turn comes, you have to present your case confidently. You should have all the relevant documents ready with you. This is not a very easy task.
You may have to wait for several weeks to get the final modification offer after your case gets registered. Your lender may tell you about your course of action in the meanwhile. You may be told by the lender to keep on making payments so as to qualify for loan modification. You need to follow it seriously so as to get the approval.
The purpose of loan modification is to ensure that you can better afford your mortgage payments. Make sure you don't miss payments under the modification agreement, as the lender will consider it a new default and it will be harder to negotiate a second modification. With each default, the chance of losing the home in foreclosure rises.

Related Readings
Posted on: 13th Nov, 2007 03:08 am
I was out of work for 3 months back in the late spring and early summer. After I obtained a new job I spoke with my lender and they wanted me to pay a three month "good faith" payment which was only a little above my current payment. I paid those 3 "good faith" payments and now I received a loan modification letter. The letter sets my loan back to 360 months and totally offsets the 2 years I have been paying on the loan. I owed 78,000 on my home and now according to this i will now owe 84,000. THis also increased my monthly payment by over $105 a month. THere is no way I can afford this. I thought a mortgage modification is supposed to help not hurt?? Any ideas on what I should do, I am very confused and lost. THanks in advance.
meta title: 
Mortgage loan modification
What to do when you have a renter property that is vacant and your 2 mos
behind?Do you call and tell your Lender you no longer occupy that property?Would the lender do a Loan Modification? I have already received
foreclosure letters.I'm now trying to sell the property,but I am behind? I
don't believe my lender knows I don't live@the property?Any advice on what I should do are can do.I have try calling Naca and others ,but was told I would not get help becauses I don't occupy the property.
Posted on: 16th Jun, 2009 10:59 am
Do you think that a Forensic loan audit help when you get a loan modification?
Posted on: 18th Jun, 2009 12:37 pm
my sale dateis 6-22-09 is it to late for loan modification
Posted on: 18th Jun, 2009 03:27 pm
My sister and brother-in-law both lost their jobs within a week of each other. Neither has been able to find another so they went back to school. Their lender will not work with them unless they have a job, although there is some unemployment income coming in. They have an FHA loan but are now being forclosed on. Is there anything they can do to save their home?
Posted on: 19th Jun, 2009 08:45 am
We have a fannie mae loan, 30 year fixed rate adjustable. I am a realtor and due to economic conditions, have a documented loss of income. I have been trying to receive a loan modification with B of A for 2 months now. I contacted my State Senators, filed complaints with the FTC, the BBB, the comptroller of currency and probably a few more I can't remember. After being transferred from one person to another, I decided to send my paperwork directly to Barbara Desoer, the woman in charge of B of A home loans. I received a call from one of her assistants who informed me that would be reviewing my documentation and get back to me in 30 days. It is important to send the right documentation to the right person. Be sure to include a "hardship" letter. Contact your State senators for help. If you have to call them every day, call them every day. Don't give up. I haven't and won't. The big banks took billions of taxpayer dollars disguised as TARP funds and have an obligation to modify home loans. If I can help anyone who needs assistance with the government guidelines, contacting bank CEOs, finding out who your state senators are and their contact information, please contact me. No lawyer is necessary if you are persistent, knowledgeable and you meet the qualifications.
Posted on: 22nd Jun, 2009 11:57 am
nativelasvegan - We have a Fannie Mae loan at a fixed rate. I have been working with WFB ( wells fargo bank ) since March and am still no where. I call them every other day and they still say the same thing – still pending. I thought people with Fannie Mae Loans were suppose to get help?? Any thoughts and or ideas?
Posted on: 22nd Jun, 2009 12:31 pm
pjb - what state are you in? I wish I knew which complaint I made had Bank of America calling me back. Since I don't, maybe you can take the same steps I did. FIRST, call your State Senators. If you do not know who they are, I will help you find their contact info. SECOND, file a complaint with the Better Business Bureau in the State you are located in. I can help you find that contact info if you need it. You can go to google and type in file complaint Better Business Bureau [then type the name of your state here. THIRD, contact Wells Fargo executives via email: John Stumpf is the CEO of Wells Fargo. I can send you a sample letter, emails, similar to the one I sent the CEOs of B of A. I also attached a spreadsheet to my letter documenting the cost of the bank taking my home via foreclosure vs. modifying my loan. Any risk analysis department should be able to review my spreadsheet and determine it to be in the bank's best interest to modify my loan rather than foreclose. I will help you do a similar spreadsheet. FOURTH, send a certified letter to John Stumpf containing all of the necessary documents to do a home loan modification. If you do not know what is required, let me know and I can send you the list of documents to enclose. Be sure to send it certified, it gets their attention. Send it to John Stumpf, Home Mortgage Wells Fargo Home Mortgage P.O. Box 10335 Des Moines, IA 50306-0335. FIFTH file a complaint with the Comptroller of Currency in the State where you are located. SIXTH file a complaint with your State Attorney General, Consumer Affairs Division. This can also be done online. SEVENTH. File a complaint with HUD. Here is the address U.S. Department of Housing and Urban Development, 451 7th Street S.W., Washington, DC 20410. I will be more than happy to help you any way I can. I realize this will take you a lot of time. It took me a lot of time but it will be worth it. I wont give up. I hope you dont either.

[E-mail address deleted as per forum rules. Thanks.]
Posted on: 22nd Jun, 2009 02:50 pm
i have sent in the paperwork to wells fargo and they respond within 45 days - i'm due to hear at the end of june. the have a loss mitigation departement that is fairly responsive. i think getting better as they had to catch up internally to educate themselves on the obama plan. i'm trying to find out what the impact of loan modification will be on my credit score.
Posted on: 23rd Jun, 2009 10:38 am
There will be a few factors involved regarding how your credit is affected after a home loan modification. There are guidelines as to how servicers are to report consumers receiving a modification. Both Fannie Mae and Freddie Mac have publications regarding the guidelines. You can visit either website and view their publications. If necessary, send the publication containing the guidelines and ask your service to stay in compliance with the written regulations.

[Link deleted as per forum rules. Thanks.]
Posted on: 23rd Jun, 2009 11:21 am
what if you get modified and you still cannot make the payments and you stop
Posted on: 24th Jun, 2009 02:42 pm
Bank of America inherited Countrywide's crooked ways. I read an article in the Chicago Tribune that said virtual there were NO conventional loan modifcations APPROVED. They are giving us the run around even with agencies like NACA assisting us. I've been going through this for months submitting documents and getting conflicting information from them. Can I hear from ANYONE who has had a successful loan modification?
Posted on: 24th Jun, 2009 09:35 pm
I have not yet had my modification approved. I have finally gotten to the point where a senior negotiator is reviewing my paperwork and gave me until July 10 to provide me with the terms of the modification. This took a lot of work and I believe my certified letter to Barbara Desoer, President of B of A that included all of the required loan documents is what led to the "senior negotiator." Have you contacted your state senators? I'll post again after 7/10 hopefully with news of my modified terms.
Posted on: 25th Jun, 2009 10:27 am
I have started the loan mod process 3 months ago when my house first went into foreclosure. My mortgage co. has lost my paperwork several times, it is very frustrating. My question is should I reinstate my loan for $18,000 (the sale/auction date is set for July 17th, today is June 29th)or hold off and see if my mortgage co. can approve me for a loan mod. and thus save some of that money for badly needed home repairs. I have already been told by them that I do not qualify for the "Making Home Affordable" loan mod. The last I heard they were checking to see if I would qualify for another loan mod. program. I have had financial setbacks, divorce, lost half my income. I need an answer and the mortgage co. if not helpful at all. Thanks
Posted on: 29th Jun, 2009 06:36 pm
Hi jmenes,

I would suggest you to contact your mortgage lender and request them to speed up the process so that you can quickly come to know whether you would get a loan modification or not.

Thanks
Posted on: 29th Jun, 2009 09:24 pm
IF I CAN DO A MODIFICATION AND SUBMIT THE PAPERS, DO I HAVE TO CONTINUE WITH MY PAYMENT UNTIL IS DONE, AND IF NOT IT IS GOING TO MY CREDIT AS LATE PAYMENTS?
Posted on: 09th Jul, 2009 11:19 am
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