A loan modification is, also known as a mortgage modification, is when a borrower creates new terms for their home loan outside of their original loan agreement. A loan modification is often confused with refinancing, which is similar, except a loan modification can only be done through your current mortgage lender. A refinance can be with another lending institution and they essentially buy out the loan from the current holder. A borrower can be in any state to begin a modification: current, bankrupt, foreclosure, or late. It is usually at the lender’s discretion to offer a modification and the terms may differ by lender. However, it is in their best interest to offer any help they can as it keeps the homeowner able to make their payments rather than foreclosing leaving the lender with the house to sell.
Mortgage loan modifications are done for the benefit of the borrower for many reasons such as:
- Lowering monthly payments
- Extending or shortening loan terms
- Reducing your interest rate
- Changing from a floating to a fixed APR
- Reducing principal
- Mortgage forbearance
- Capping a monthly payment to a percentage of income
In 2009, the government started a program called the Federal Home Affordable Modification Program (HAMP) to help struggling homeowners from foreclosing on their homes.The program helped establish standard guidelines for lender’s to evaluate potential homeowner modifications. HAMP is now industry standard with more than 110 lenders signed on to work under these guidelines.
Eligibility for HAMP:
- Mortgage originated on or before January 1, 2009.
- You owe up to $729,750 on your first-lien loans on primary residence or single unit rental property
- Higher limits are allowed on 2 to 4 multi-units such as up to $1,403,400
- The property must not been condemned
- You have a financial hardship and a signed affidavit to prove it and are either delinquent or in danger of falling behind on your mortgage payments
- You have documented income such as a pay stub
- You must not have been convicted of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction within the last ten years .
These may vary by lender and you should contact yours to get the specific qualifications for your current situation.