Loan Modification - Home Loan Modification and Mortgage Restructuring

Loan Modification - What is it and Will it Help You?

Last Updated: May 17, 2011

Whether it's called a loan modification, mortgage modification, restructuring, or workout plan, it's when a borrower who is facing great financial hardship, having difficulty making their mortgage payments and is facing foreclosure, works with their lender to change the terms of their mortgage loan to make it affordable. The workout plan varies by lender, but changes could include temporary or permanent changes to the mortgage rate, term and monthly payment of the loan, the past due amount could be rolled into the loan, and the new balance re-amortized.

Home Affordable Modification Program

In January of 2009, President Obama unveiled the "Making Home Affordable Program" which is comprised of two programs: one for loan modifications and one for refinancing loans. The loan modification program is called the Home Affordable Modification Program (HAMP). It is designed to reduce mortgage payments homeowners pay per month to sustainable levels. The refinance plan is called the Home Affordable Refinance Program (HARP).

Who is Eligible for a HAMP Loan?

To qualify, you must:

Originated your mortgage before Jan. 1, 2009.
Be an owner-occupant.
Have an unpaid balance that is equal to or less than $729,750 (for a single-family home).
Be unable not pay your mortgage due to financial hardship. (i.e. Medical problems that increased your bills, or, decrease in income due to a job change. You will be required to provide a letter of financial hardship.)
Your monthly mortgage payment must be more than 31% of your gross (pre-tax) monthly income.

Who is NOT Eligible for a HAMP Loan?

Those of you who bought homes for investment purposes. All homes must be owner/occupied. Also, if you cannot afford the home due to job loss or a complete inability to pay, you will not be eligible. Also, mortgages with amounts above the conforming loan limits would not be eligible.

Are There Other Loan Modification Programs Out There?

HAMP, HAFA (for short sales) & 2MP (for 2nd mortgages) are not the only programs available to homeowners, so just because you get rejected for these programs does NOT mean that you CANNOT get a modification. There may be some internal programs that are private modifications made available by your lender and these are offered on a case by case basis. So what are these mysterious "internal" programs? They are privately negotiated loan modifications where terms are approved or disapproved by the lender on a case by case basis. The lender could range from Freddie Mac, Fannie Mae to some other major lender - you just need to know who "owns" your loan and that is the entity you will be negotiating with.

If you going to work directly with your lender on a loan modification, make sure you do your homework first and that you know what you are talking about. Arrange your finances and have a effective hardship letter ready. The better prepared you are, they better chances you will have at negotiating the loan modification you want.

Will a Loan Modification Help You?

If you are facing a foreclosure on your home, then YES, a loan modification will help you. As with anything, the more research you do on the subject and the better educated you are about the entire loan modification process, the better your results will be in the long run. There are government as well as private programs available and you will need to investigation the pros and cons of each to see which is a good fit for your financial situation. The internet is loaded with information on the subject but it doesn't hurt to seek professional advise as well.

The bottom line is, if a loan modification keeps you from losing your house, all of the effort you put into your research and preparation will be worth it. There is light at the end of the tunnel - just getting there can be hard work.