A loan modification is a written agreement between the Homeowner and the loan servicer to temporarily, or permanently, alter one or more of the terms of the original agreement. Common types of loan modifications are: rate reduction, capitalization, term extension and one-time assumption. In short, loan modification involves altering the terms of an existing loan to attempt to make it more affordable for a borrower. The aspects of the loan typically modified include the interest rate and/or the term (length) of the loan. Some lenders are now also considering the reduction of the principal of the loan, though this is rare.
Loan modification is not the same as refinancing. Refinancing is originating a new loan with different terms and, typically, includes associated closing costs. A loan modification typically does not require the costs associated with a refinance.
Government Modification Programs
The most recognizable loan modification program is the government’s “Making Home Affordable.” Created to help those whose home values may have fallen relative to their mortgage values, this program is available to homeowners with a first loan that is 80-125% of the value of the home. The eligibility criteria for the Making Home Affordable Modification Program are:
- Be an owner-occupant in a one to four unit property,
- Have an unpaid principal balance that is equal to or less than $729,750 for one unit properties (there is a higher limit for two to four unit properties),
- Have a loan that was originated on or before January 1, 2009,
- Have a mortgage payment (including taxes, insurance, and home owners association dues) that is more than 31% of your gross (pre-tax) monthly income, and
- Have a mortgage payment that is not affordable, perhaps because of a significant change in income or expenses.
The Home Affordable Modification Program is focused on helping as many struggling families with their mortgages as possible. According to the Making Home Affordable Website, it does this by reducing borrowers’ interest rates and monthly payments down to a level they can afford. In addition, the plan permits lenders to get to a level of affordability in a variety of ways, including reducing interest rates, extending terms, or writing down principal.
If you want FREE help completing the forms, or if you have questions about the process, you can call the Homeowner’s HOPE Hotline at 1-888-995-HOPE (4673) and ask for MHA HELP.
OTHER LOAN MODIFICATION PROGRAMS
Though the government programs get the most press, every lender has their own programs for working with distressed homeowners. Additionally, many lenders have contracted with “modification assistance” companies to inform homeowners of the alternatives available and help them prepare the documentation required to request modifications. One of the largest and most recognizable of such companies is Titanium Solutions which works with many of the industries giants (Bank of America, Wells Fargo, etc.).
To find out what loan modification options your lender has available, you call your lender directly and ask to speak to someone in the Loan Modification Department or you can have a Helping Neighbors in Need representative contact your lender for you by going to the Contact portion of this website.
NOTE: If you are already behind on your payments when you call your lender, you will typically be connected to the Collections Department – the Collections Department will not work with you to modify your loan. Insist that you speak to someone in the Loan Modification Department (or Workout Department) and ask them what information that they need to consider modifying your loan to something more affordable. Be sure to write down the name and phone number of the Loan Modification representative you speak with to ensure you have a point of contact for future calls.
FREQUENTLY ASKED QUESTIONS ABOUT LOAN MODIFICATIONS
If you would like to speak with a Helping Neighbors in Need counselor
concerning your specific situation,
Assistance is free and all discussions are held in strict confidence.
