Home Loan Modification Process

 Home Loan Modification Process

Home loan modification was re-introduced into the housing marketplace by the Obama Administration in March 2009. The main intention was to help homeowners who are struggling financially and would like to reduce the overall costs of their mortgage. The US government injected a total of $75 billion into home loan modification and their aim is to help up to 8 million homeowners who are having difficulties with their current home loan payments.

There are certain eligibility requirements and these include:

  • You must be behind on your current mortgage payments.
  • You must be paying over 31% of your gross monthly income towards your mortgage.
  • Your mortgage loan must have been taken out before 1st January 2009.
  • The property must be your primary residence and must not be worth more than $729,750.
  • You must be able to prove that you will be able to afford your modified home loan payments.

If you can meet these criteria then you are likely to be an ideal candidate for home loan modification. The process will initially involve you explaining to your lender that you are in financial hardship and would therefore like to apply for mortgage loan modification. Possibly, the most important document you will have to provide will be a financial hardship letter.

This letter should explain your current financial circumstances and especially why you have found yourself struggling with your mortgage payments. If you have a reduced level of income through a job loss, reduced work hours, or a spouse who no longer works, you will need to explain this. Perhaps you are going through a separation or divorce, or have been saddled with a huge medical bill. You may even have seen your monthly expenses increase significantly. Whatever the reasons for your mortgage payment problems you will need to explain this in your letter.

The financial hardship letter should also explain to your lender how you intend to repay the loan through the modified terms and why you believe that this will help you to not default again. You will need to provide a number of financial documents which should clarify the information contained within your financial hardship letter, so please ensure that your figures in your letter match your documents. The documents you will need to provide should include your recent pay stubs, W-2s, bank statements, credit card statements, and any documents that hold information about your income and expenses.

It is extremely important that you supply the information and documents that you are asked for, as due to the overwhelming number of applications for home loan modification, the vast majority of lenders will not have time to help you with this part of the process. In fact, if you provide incorrect or insufficient information, your application is likely to be put to the bottom of the pile and will be looked at again at a later date. This is not what you want if you are struggling with your mortgage payments and need urgent help.

Once your lender is willing to approve your loan modification application there are a number of ways in which they can lower your mortgage payments. Firstly, the interest rate on your loan can be reduced to 2%. If this is still not enough to get your mortgage payment in line with the modification criteria, a lender has the ability to extend your loan up to a maximum term of 40 years. However, if your lender is still unable to reduce your mortgage payments to a satisfactory level you may be eligible for further discounts, although these will be discussed with you on an individual basis.

The home loan modification process can be extremely complicated and this is why there have been a number of professionals who have recently surfaced to help individuals and families. These professionals range from loan modification attorneys, modification mortgage consultants, and specialist mortgage loan modification companies. However, that being said, these professionals are known to charge a tidy sum for their assistance, and often the fees charged can range from $1,500 to $5,000.

I'm sure you'll agree that this is a fairly hefty price for someone to pay if they are already facing a financial hardship. You can, of course, complete the entire home loan modification process on your own, but you will need to be extremely competent in your dealings with your lender. You must supply all the information and documents that are requested, and it is a good idea to contact your lender on a regular basis to see if you can speed the process along. This may involve you providing additional information or documents at your lender's discretion.