Loan Modification BasicsLoan modifications often become necessary when borrowers are unable to maintain the terms of their mortgage loan. It is also referred to as a mortgage loan modification or restructuring. A loan modification would typically be offered if a borrower’s mortgage payments were in excess of 38% of their income and they had missed 3 monthly payments or more due to a change in financial circumstances.

Purpose of Loan Modifications

You may have been paying a mortgage for some years, and your firm folds. You might get a new job at reduced income – too low to enable you to maintain your mortgage payments. Maybe your working hours have been cut. Whatever the reason, if you are unable to pay your mortgage you may be able to arrange a loan modification.

The purpose of loan modifications is to reduce your mortgage payments to 31% of your gross income. Banks are motivated to go along with this, because foreclosure would cost them more than modifying your loan. It is to their benefit that you remain in home even if you are paying less per month. They are at least getting something and the mortgage loan will eventually be repaid. Loan modifications usually come in the form of an interest rate reduction, or less frequently,  an extension of the repayment term.

Eligibility For Loan Modifications

As stated earlier, you may be eligible for loan modifications if you have trouble paying your mortgage. However, there are rules, and you can’t just modify a mortgage if you are using your money for other things. If your mortgage payments are more than 38% of your monthly income then you will likely qualify, though other factors are also taken into consideration.

If you are finding it difficult to keep up your payments, don’t wait until you get a foreclosure notice to think about this. Apply for a loan modification now. You can either do it yourself or go through a loan modification firm or an attorney.

Requesting a Loan Modification

When making a modification request you will have to provide proof of the household’s income, evidence of all existing debts and notification of any investments or savings you have. This involves wage stubs, bank and credit card statements, income tax returns, any existing credit such as car loans, student, loans, second mortgages, etc. Loan modifications require absolute proof of necessity, and proof that you are not deliberately withholding payments to force a modification.

You must also write a letter explaining when your problems began and how you are in this situation. What was the reason for your income being reduced or your expenses increased? Explain exactly why you can no longer meet your mortgage commitments, and why you are so far behind.

Honesty is Essential

You must be totally honest. The objective of the above documentation and letter is to demonstrate that you are in this position through no fault of your own, and have made every effort to keep up with your payments. You must cooperate with everything your lender asks of you.

You must make application for a loan modification directly to the lender. If that lender realizes that the only other outcome would be foreclosure, then you will likely be offered a modification to your mortgage terms if you also meet the above requirements. You will probably have to speak to a financial adviser or mortgage professional to help with the correct advice on how to go about making your application. For more answers to your mortgage questions, please call Anthony DiLeo at (732) 264-2700 x18 or email [email protected]