How Does Mortgage Loan Modification Work?
Mortgage loan modification is a foreclosure prevention strategy offered to borrowers facing temporary financial setbacks. Banks can adjust interest rates or extend loan terms to reduce monthly payment amounts.The process to obtain a mortgage loan modification can take a few months to complete. Borrowers should be proactive in contacting their lender’s loss mitigation department as early as possible.Loss mitigation handles all types of mortgage agreements including foreclosure, real estate short sales, mortgage refinance, and deferred payments. Borrowers often find it difficult to speak to a human being at their lender. If mortgagors are unable to speak to a loss mitigator within 5 business days, they should ask to speak to a senior loan officer or submit a certified letter to the bank.Borrowers are required to submit a “Request for Modification and Affidavit” (RMA) document to their lender. Most banks also require a loan modification hardship letter outlining circumstances which caused financial problems, along with any remedies taken to fix problems.Banks will review borrowers’ personal finances and their mortgage note to determine if entering into a modified loan is a viable option. If so, a loss mitigator will be assigned to work with borrowers throughout the process.Mortgagors should be prepared to undergo financial scrutiny. It is best to organize financial records including bank statements, credit card statements, wage records, insurance policies, and previous years’ tax returns.If approved, banks provide a modification agreement which must be signed and notarized. If borrowers do not qualify for a modified loan, banks may offer other foreclosure prevention options. If borrowers have defaulted on their mortgage note and do not qualify for mortgage modification, the bank may commence with foreclosure action.Mortgagors who want to learn about the mortgage loan modification process may find Making Home Affordable a good source of information. This government sponsored website provides information, resources, and tools that can streamline the process of applying for a modified loan.Borrowers can utilize mortgage calculators to help determine if they meet loan modification or mortgage refinance criteria; locate information about various foreclosure prevention programs; and locate HUD-approved housing counselors.Approximately half of mortgagors who obtain mortgage loan modifications default on the new loan agreement within the first six months. According to the Office of Thrift Supervision, the primary causes of default stem from incomplete paperwork from either borrowers or banks, and lack of income to adhere to loan terms.Borrowers who have entered into pre-foreclosure or foreclosure may want to review home-saving strategies offered at LoanWorkout.org. In addition to providing loan modification information, this foreclosure prevention website provides links to reputable loan assistance counselors. LoanWorkout also publishes an extensive list of foreclosure and loan modification scams.Once borrowers obtain approval for their mortgage loan modification they must be highly proactive in remaining current with payments. Banks normally commence with foreclosure if borrowers default on modified contracts.Mortgagors who are facing financial hardship should consider scheduling a consultation with HUD-approved housing counselors. These trained professionals can help borrowers determine if a mortgage loan modification is the best solution or if other options should be explored.
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