What is a loan modification and how does it differ from refinancing? A home loan modification is similar to mortgage refinance; its aim is to provide a more affordable mortgage payment to fit in with your financial situation. In this case you are not seeking a “new” loan, but instead you are modifying the terms of your existing mortgage.
Due to the credit crunch, refinancing an existing mortgage in order to obtain a more affordable mortgage payment is no longer an option for many homeowners. Loan modifications can help homeowners who cannot make their monthly mortgage payments but are prevented from taking advantage of other mortgage financing or payment options.
Are you eligible for a loan modification?
This actually depends on the company that services your mortgage. Most follow similar qualification criteria including the following: You have experienced a documented hardship or change in financial circumstances; you have missed three payments (90 days delinquent) or more; you own and occupy the property as a primary residence; you have not filed for bankruptcy. Also, you must prove that you are nor purposely defaulting to obtain a loan modification. The best way to find out how the program works is to contact your lender, inform them of your difficulty and obtain more information.
How to go about it
It is important to understand that you can only receive a loan modification with the lender or servicer that currently holds your mortgage. If you are not sure what this entity actually is, take a look at your mortgage coupon book and see who you send your mortgage payment to each month.
To avoid unnecessary delay and red tape, you may do well to consult with an expert in order to streamline your loan modification process.
The next step is to prove to the bank that it is in its best interest to modify your loan. Remember that your bank is in effect making a new loan to you after taking a loss on the first one. You must be able to prove to the bank that you are able to make your payments on the new modified loan terms.
Here are some of the prevalent loan modification programs: The White House/Treasury Loan Modification Program (visit FinancialStability.gov – Making Home Affordable); IndyMac Federal Bank Loan Modification Program (visit FDIC Loan Modification Program for Distressed IndyMac Mortgages); Federal Housing Finance Agency Loan Modification Program (visit FHFA Director Lockhart’s Statement on Loan Modification Program); Major Lender’s Loan Modification Programs (visit Preemptive Initiatives to Help Homeowners and Office of Homeownership Protection).