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Steps for Getting a Loan Modification

By:
Kirk Haverkamp - MortgageLoan.com

If you’re having trouble meeting you mortgage payments due to reduced income or other financial problems, a loan modification may be your best bet for handling the situation and saving your home.

A loan modification is basically when your lender agrees to adjust the terms of your mortgage, either temporarily or permanently, to enable you to keep up with your mortgage payments and avoid foreclosure. Reasons for seeking loan modification vary, but can include a reduction in household income, a medical crisis that has generated additional costs or kept you from working, a divorce or an adjustable mortgage that is resetting to a higher monthly payment.
 

More homeowners being approved

 
Some homeowners may be discouraged from seeking a loan modification, because of all the reports about the difficulty and delays other borrowers have encountered. But things seem to be looking up. After a rocky start, increasing numbers of homeowners are being approved for loan modifications under the Home Affordable Modification Program (HAMP), the government’s primary foreclosure rescue program.
 
Even if you don’t qualify for HAMP, most lenders have their own private loan modification programs that might not be as generous in the terms they provide, but can still help you manage your mortgage and hold on to your home.
 

Seeking a mortgage loan modification

 
So how do you go about seeking a loan modification? Experts agree that the most important step is to contact your lender as soon as you encounter financial trouble. You may still be able to manage your mortgage payments for several more months, but calling you lender immediately helps you map out a plan of action for the months ahead and demonstrates that you’re serious about working with them to find a solution.
 
You need to act promptly. Though some lenders may not begin to take your application for a loan modification seriously until you’ve already missed one payment, others may be more accommodating. And acting before you start missing payments helps keep your options open as well, such as refinancing the loan on better terms, which is generally even better than a loan modification and which usually can’t be done after you start missing payments.
 

Documenting your situation

 
When you contact your lender, you need to document your situation and finances. A key part of any loan modification application is the hardship letter in which you explain 1) the reasons for your financial difficulty and 2) why a loan modification would help you get through your financial crisis and manage your mortgage payments over the long term.
 
Unfortunately, you probably won’t be able to qualify for a loan modification if you’ve lost your only job and are totally without income. But two-earner couples in which one person has become unemployed may still find themselves eligible, as may single persons or couple who have experienced only a partial loss of income.
 
To seek a loan modification, the first step is to contact the loss mitigation department of your mortgage servicer, the lender you send your mortgage payments to. They’ll usually have information for persons seeking loan modifications and even application packages to guide you through the process. Information on pursuing a government-backed Home Affordable Modification is available through the government’s Making Home Affordable Program web site, as well as through government-supported lenders Fannie Mae and Freddie Mac.

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