Blog for Mortgage Loan Modification

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Mortgage loan modification is giving hundreds of homeowners relief from their worst fears; instead of the dread of having their home taken away, they now have a chance to start over with their home loan and stay on track.


Lenders are now more willing to consider loan modification since the federal government is offering incentives. Due to the number of homeowners losing their homes to foreclosure, home loan modification is being presented as one of the best options for both enders and borrowers to keep loan payments on track.

Who is eligible for loan modifications?

Nearly all mortgage holders who are behind on their payments can apply for the “loan modification” program. Even mortgage holders who are not behind but whose payments are disproportionate to their income can apply; for instance:

If income has been reduced or lost through unemployment, loss of a job, reduced hours, wages or salary or the failure of a business.

If household financial circumstances have changed due to the death of a homeowner or someone in their family, an accident or illness racking up major medical expenses, childcare costs, a disability, military duty or a job relocation.

If the monthly debt payments are excessive (over 1/3 of the monthly income), or if there is substantial other debt, such as credit card balances, home equity loans or other debts.

If overall expenses have increased such as mortgage payments (usually due to interest changes), utility bills, or increased taxes or insurance.

How much can payments be lowered?

Federal guidelines indicate lowering homeowners’ mortgage payments to an amount that is no more than 31 percent of their monthly income. Mortgage holders (banks, lenders) must meet this threshold in order to qualify for federal subsidizing and incentives.

Since interest rates can't be less than 2 percent on a mortgage loan, if lowering the interest to this level doesn't bring the payments low enough, the term of the loan can be extended up to a total of 40 years. The interest rate will be locked in for five years, then may slowly go up until it reaches the original rate or average rate at the time you qualified for the loan (whichever is lesser).

What will I be required to prove?

Hardship. The officials in charge of the modification program subsidized by federal funding is very strict about who qualifies - they want to ensure that no one who originally qualified for a home and fudged their paperwork will be approved. This includes irresponsible homebuyers and individuals who bought properties to 'flip', falsified their mortgage documents, or purchased multimillion dollar homes without a sound financial reason to do so.

Federal officials mandate that only “at risk” homeowners be approved for government assistance. Applicants must prove one or more of the following to be applicable in their case:

Exceptional reason(s) they are so close to default
Serious hardship (illness of self or family member)
Financial strain such as increased bills or decreased earnings
Interest rate hikes
Payments on mortgage over 1/3 of income
Upside down loans (owe more than house is worth)

An attorney can help you determine how best to convince the lender that you are experiencing hardship, so consider taking one along when you meet to discuss the possibilities of mortgage modification.

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