Mortgage Modification

A loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.

Mortgage modification is a process where the terms of a mortgage are modified outside the original terms of the contract agreed to by the lender and borrower (i. e mortgagor and mortgagee). In general, any loan can be modified. In the normal progression of a mortgage, payments of interest and principal are made until the mortgage is paid in full (or paid off). Typically, until the mortgage is paid, the lender holds a lien on the property and if the borrower sells the property before the mortgage is paid-off, the unpaid balance of the mortgage is remitted to the lender to release the lien. Generally speaking, any change to the mortgage terms is a modification, but as the term is used it refers to a change in terms based upon either the specific inability of the borrower to remain current on payments as stated in the mortgage, or more generally government mandate to lenders. A loan modification will typically result in the change to the loan´s monthly payment, interest rate, term or outstanding principal. Mortgages are modified to the benefit of the borrower in one or more of the following ways:The borrower can be current, late, in default, in bankruptcy, or in foreclosure at the time the application for modification is made. The programs available will vary accordingly. There may be modifications made at the discretion of the lender. The lender is motivated to offer better terms to the borrower because of the expectation that the borrower might be able to afford a lower payment, and that a performing loan (i. e. one in which payments are current) will be more valuable ultimately than the proceeds obtained from a foreclosure sale. The state and federal government may structure a mortgage modification program as voluntary on the part of the lender, but may provide incentives for the lender to participate. A mandatory mortgage modification program requires the lender to modify mortgages meeting the criteria with respect to the borrower, the property, and the loan payment history. February 18, 2009Home Affordable Modification Program, also known as HAMP, is set out to help up from 7 to 8 million struggling homeowners at risk of foreclosure by working with their lenders to lower monthly mortgage payments. The Program is part of the Making Home Affordable Program which was created by the Financial Stability Act of 2009. The program was built as collaboration with banks, services, credit unions, the FHA, the VA, the USDA and the Federal Housing Finance Agency, to create standard loan modification guidelines for lenders to take into consideration when evaluating a borrower for a potential loan modification. Over 110 major lenders have already signed onto the program. The Program is now looked upon as the industry standard practice for lenders to analyze potential modification applicants. The program abides by the following eligibility and verification criteria:Foreclosure rescue and mortgage modification scams are a growing problem. Homeowners must protect themselves so they do not lose money or their home. Scammers make promises that they cannot keep, such as guarantees to “save” your home or lower your mortgage, oftentimes for a fee. Scammers may pretend that they have direct contact with your mortgage servicer when they do not. After the beginning of the mortgage crisis, unscrupulous mortgage professionals began setting up "Foreclosure rescue" companies promising for a large fee to persuade lenders to modify desperate homeowners' mortgages. Nonprofit housing counselors approved by the Department of Housing and Urban Development will help borrowers for free; additionally, many states are enacting legislation which forces loan modification companies to become licensed and bonded to legally remain in business, eliminating many fraudulent operations that charge fees. There are free resources available for potential applicants.