Mortgage Modification Programs Save Homes
When we help homeowners save their homes from foreclosure, mortgage modification is a common option we explore. Because the process of getting a modification can be very involved, having a certified housing counselor in your corner is essential for many homeowners.
The goal of a mortgage modification is to get the homeowner a new mortgage payment that s/he can afford, while paying off as much as possible of the original mortgage loan in the process.
Sometimes it can be difficult to satisfy both goals at the same time; reducing the amount the homeowner pays will obviously make it harder to pay off the full loan amount. This may mean that the loan term is extended; if one has 25 years left to pay on a mortgage, they may find themselves back up to 30 years after the mortgage modification. So while they do get some relief with more affordable payments, they will be back to square one when it comes to how many years are left to pay.
In very rare circumstances, a lender may forgive a portion of the mortgage debt, or grant a principal reduction, so the borrower has to pay back less in total to satisfy the mortgage. This doesn’t happen often because the lenders have an obligation to the owners of their mortgage-backed securities to collect the full loan amount.
Instead of principal reductions, mortgage modifications typically grant a reduction in the interest rate paid, an extension of the loan term, or a deferral of some part of the principal until the loan is refinanced or the property is sold.
The mortgage modification process
To get a modification, the borrower usually has to prove to the lender that s/he has suffered some kind of significant financial hardship and needs relief if the mortgage is to be saved. Our housing counselors help advise borrowers on how to create an effective “hardship letter” that explains their circumstances to the lender.
Lenders also request a lot of information about the borrower’s financial situation, like pay stubs, bank statements, and household debts. The lender will use this information to confirm that the borrower can make his/her payments going forward after the modification.
Modifications are more likely to be approved if the borrower promptly submits all requested paperwork to the lender. That’s why our counselors help homeowners put together all of the necessary documentation so they’re ready to provide everything the lender needs right away.
Some lenders have “streamlined” modification programs that make the process go more quickly. Not every mortgage situation will qualify for a streamlined modification, but our counselors can help borrowers determine whether they might be good candidates for these programs.
While you can always reach out to your lender and request a modification on your own, a counselor with a HUD-approved housing agency can help you understand and prepare for the process, free of charge. We think anyone who wants a modification should start with free home preservation foreclosure prevention counseling to give them the best chance of success. Call us today if you have any questions about getting a mortgage modification; we’re here to help.