If you are having challenges keeping up with payment of your mortgage, you may consider seeking a loan modification. It involves the restructuring of your mortgage payment terms to give you the borrower repayment plan that lines up with their current budget. Some of the borrower’s loan terms are adjusted to help the borrower catch up late payments and get back on track with the mortgage, while also avoiding damage to his or her credit.

Loan modifications provide a better alternative to foreclosure for both borrower and lender. It is a long-term solution aimed at lowering the monthly payment to enable the borrower to keep up with the payment and preventing the bank from high costs associated with court costs, attorneys fees, realty fees, etc.. Loan modifications sometimes allow for –

  • Elimination of late fees;
  • Reduction in interest rates;
  • Lowering of principal balance; and
  • Lengthening the repayment period.

Eligibility for a loan modification depends on multiple factors:

  • Your ability to prove that you are unable to meet your present mortgage payment as a result of financial hardship;
  • Your demonstration of your ability to afford the new monthly payment plan by successfully completing a trial period; and
  • Whether you can provide all necessary documentation to the lender. Some of these required documents include financial statement, hardship statement, proof of income, and most recent tax returns.

Basically, getting your lender to agree to loan modification can prove to be an uphill task. However, if your lender believes it has more to gain from the loan modification, it will make the process easier. There are loan modification companies and attorneys that can assist you during the entire process.

Benefits of loan modification

  • Both the borrower and the lender can avoid the stress involved in foreclosure or short sale. It is more cost effective for the lender in the long run.
  • Your monthly mortgage payment is reduced according to your current income to make it easier and more affordable.
  • A loan modification does not adversely affect your credit history as much as foreclosure would.
  • It also protects your credit because you are better able to pay the monthly mortgage and avoid falling behind on your payment.
  • The borrower gets to keep his or her home.

Disadvantages of loan modification

  • You may be required to pay mortgage processing fees to your lender, though this is not always the case.
  • It can affect your credit score especially the previous missed payments.
  • If you have been granted a previous loan modification by your lender, you may not be qualified for another one.
  • The borrower will repay the mortgage over a longer period or time.

Loan modification varies and therefore has no one specific means to the end. This can be quite confusing and stressful for the inexperienced borrower. Each lender has different underwriting rules and different document requirements, so it can be difficult or impossible to guarantee that a homeowner will be approved for a loan modification without knowing more about who owns the loan.

Contact an attorney or homeownership counselor with experience in obtaining loan modifications for clients and save yourself a lot of future stress.


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