How Does Mortgage Loan Modification Work?

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How Does Mortgage Loan Modification Work?

Mortgage loan modification uses special programs to address a number of situations. It can do the following:

• Lower your monthly mortgage payments. Modification can restructure your mortgage contract to lower your payments each month, making it easier to pay them. Most programs achieve this by capping your monthly payment to a percentage of your income and/or stretching out the length of your loan so that you pay the lower payments over a longer period of time. With some programs, the actual principal can be reduced.
• Lower or modify the interest rate on your mortgage. Modification can also reduce the amount you pay each month by refinancing the rate to something lower. Also, it can change the rate from adjustable to fixed, thus preventing it from rising too high.
• Forbear interest on your mortgage. Modification can remove interest from your mortgage payment so that, for a time, you pay only principal. The interest is typically added elsewhere onto the loan.
• Assist the unemployed. Modification can reduce monthly payments, reduce principal, or suspend mortgage payments for several months.
• Address negative equity in your home (i.e., being underwater). Modification revalues your home and refinances it with a monthly payment that is in line with its new valuation.
• Assist with second mortgages. Modification can reduce the principal on a second mortgage or refinance it in some other way that lowers your monthly payments.
• Allow you a managed exit from your home. Modification can, if need be, let you leave your home without foreclosure; it may also provide you some relocation assistance.

Eligibility for mortgage refinance programs

Different modification programs have different criteria, but the borrower can be in default, in foreclosure, late on payments, in bankruptcy, or even current on his or her mortgage payments and still apply to at least one of them. Eligibility criteria are based on, and limited by, variables such as these:

• The date that the mortgage originated
• The size of the mortgage
• Whether the home is occupied by the owner
• Documented income
• The ratio of your monthly payment to your gross income
• A criminal record with regard to mortgages or other real estate transactions
• Whether the home is underwater (you owe more on it than it is worth)
• Financial hardship
• Whether the mortgage is guaranteed by a federal agency
• Whether you are current or in default
• Whether you are employed
• Whether you are currently participating in a modification program