Mortgage loan modification is a process by which your lender agrees to change the existing terms and conditions of your mortgage loan. More and more people are opting for this option so that they can repay their loan in a comfortable manner. You need to qualify for the same. Let us take an instance to understand how mortgage loan modification works.

Antony Hare residing in his own house had applied for a mortgage loan with ARM or adjustable-rate mortgage. He continued making payments for the first few years. A sudden medical emergency depleted him of his savings. He started missing his mortgage payments. Antony took out the mortgage loan prior to January 1, 2009. After calculating it was found out that his house payments were more than 31% of his gross monthly income. However, Antony’s loan was within limits set by Fannie Mae. When Antony took out the mortgage loan, he had agreed upon ARM. Since Antony had opted for ARM, he had to pay lower rate of interest initially. Later, the rate of interest escalated and this created all the trouble for Antony.

Recently, Obama administration announced the Homeowner Affordability and Stability Plan. It is assumed that the bail out program is likely to help about 7 million homeowners and save their property from foreclosure. Antony spoke to a financial expert to find out whether he qualified for the mortgage loan modification program or not.

It was found that he had qualified for the mortgage loan modification program. So, he sent a loan modification request to his lender. Whether a loan modification request will be approved or not solely depends on the lender.

There are a number of factors that are taken into consideration while deciding whether a loan modification request will be approved or not. So, in case of Antony loan modification request, lenders enquired if his property had enough equity or not. Antony was also asked to give documentary evidence that he was facing financial hardship.

Antony had to produce the following documents-

• Hardship letter
• Financial worksheet
• Recent and a valid driver’s license
• 2 Recent pay stubs
• 2 Recent year’s tax returns
• Attorney Retainer Agreement
• 3 Recent bank statements
• Mortgage payment statements/coupons
• Property tax statement

Once the loan modification request is approved, it is sent to the loan processing division and the existing terms of your loan are modified.

Lenders help borrowers in 3 ways. They can either extend the loan term of the existing mortgage or change the rate of interest. The principal balance is also reduced at times. In Antony’s case, the rate of interest he had opted for initially was an adjustable-rate mortgage. The lender changed ARM to FRM or fixed-rate mortgage.

However, it takes a week or 2 before the loan modification request comes into effect. Loan modification can help you in a number of ways provided you are eligible for the program.

Benefits of loan modification

Let us see how Antony benefited from the loan modification program.

• Loan modification doesn’t have any adverse effect on your credit rating.
• There are no negative tax consequences
• In majority of the cases, no new appraisal is required
• No closing costs
• No refinancing
• Your home equity is maintained
• A flat fee is charged for the services offered.

Loan modification is a good option for paying off your mortgage loan without refinancing. It can help you save a lot of money and you can pay off your loan as per a new payment schedule.

About the author: Jessica Bennet is one of the financial writers associated with the Mortgagefit Community. With her in-depth knowledge and vast experience, she has had a profound impact through writing and advising on all mortgage issues such as loan modification and foreclosures and has presented useful tips for the same. Her remarkable guidance and support has improved the community into a global hub for the mortgage related situations. She is highly appreciated by the forum moderators and other authors of our community.

Image Credit: cumortgageservice.com

19 comments:

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