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Home Loan Modification

Woman with Modification Papers

Give me the short version!

In simple terms, a Loan Modification is essentially just a home refinancing at a lower rate, offered by your current bank.

Let's say you bought a beautiful $350,000 house back in 2007 and qualified for a low 6% mortgage rate. Your payments of $2100 were easy to keep up with, and life was good. Then the Great Recession hit and your income got a little squirrelly, so you tried to refinance ... only to discover that your home's new value is $250,000 and no one would give you the time of day. So little by little, every month has been getting more and more difficult.

You still owe $325,000 plus a few missed payments. So, to avoid foreclosure, you ask your bank for a HAMP Loan Modification. They grant you a new 2.5% mortgage rate with no money down and your new payments are $1,460 per month without extending the loan! The $640 a month savings is now enough to give you some breathing room for catching up the rest of your bills, and life is good again.

Banks are not very motivated into granting lower rates if they feel you can still pay the higher ones, because that is where they make their profit. But for the homeowner, it is often the difference between struggling to survive and living in comfort again.

If this is you, don't give up ... and keep reading.

Without a loan modification, I may lose my house!

There are traditional loan modification plans, and the special program set up by President Obama. Under the traditional plans you are at the mercy of the same bank that got you into your current state of frustration. At this time there is no advantage for you to get a traditional modification when compared to the "Home Affordable Modification Program."

Loan Modifications are not quick nor are they easy, but they do result in the best possible mortgage rates ... if you can qualify for one. To get an idea if a Loan Modification is right for you, there are a few questions you can evaluate for yourself.

To qualify for President Obama's "Home Affordable Modification Program" there must be a hardship, a high monthly payment on your primary residence that you can't afford to pay, and a few additional Terms of Qualification. So, in today's economy, almost everyone in financial trouble qualifies.

(Note: The banks know that a trial period is required, and that you only get one shot at this. Furthermore, they are not required to inform you of what can kick you out of a permanent modification. So they have several tricks that they will likely try. Notice Q & A for more details.)

The Terms of Qualification are pretty straight forward, and must all be met. If you cannot meet all of the Terms below, then a Traditional Modification may still be available!
  • This is my first and only Home Affordable Modification.
  • My mortgage was originated on or before January 1, 2009.
  • I am currently living in my single family home which is my primary residence.
  • My home is a 1-4 unit property (and if a manufactured home, affixed to a foundation and treated as real property under state law.)
  • The unpaid balance of my first lien (not counting arrearages) is less than $729,750. (Less than $934,200 if I own two Units, $1,129,250 if three; $1,403,400 if I own four.)
  • I do not have sufficient liquid assets to make my monthly mortgage payments due to some hardship. (Hardships are explained here: So, what is a Hardship?)
By the way, any foreclosure action must be temporarily suspended during the Home Affordable Modification process, and throughout the Trial Period. Foreclosure actions can be resumed if you fail to complete the Trial Period successfully.

You can try to negotiate with your bank on your own, or you can hire an expert negotiator. When negotiating on your own there is no negotiating cost, but you can expect the bank to bully you into a less than optimum result. An expert negotiator will charge a small fee, and will usually save you from ten to twenty times as much in return.

Let's take a look at what you can expect an expert negotiator to do for you and what makes them worth their fee.

For starters, it is illegal for them to charge you anything before doing the work. So, you should run from any company asking for money up front. To keep from wasting either their time or your time, you can expect a pre-approval process with no cost to you. During the pre-approval process there should be no request for a social security number, no home appraisal, no FICO or credit qualifications and no request for money.

A few years ago, there were quite a few Loan Modification Scams. Most all of those companies have since gone out of business. Currently, there are some good attorneys still in the modification business that specialize in mortgage and real estate law. Just be sure to check them out on-line before contracting for their services.

At this point you have four choices:
  • You can try to do it yourself without any help.
  • You can try to do it yourself with informational assistance.
  • You can hire a lawyer to handle your Loan Modification.
  • Or you can do nothing and cope with the consequences.

Now you have another choice:
      Do you really need a loan modification right now, but have extremely limited resources?
      Do you really need help with a loan modification right now, but there's just no way to pay an attorney for professional help right now?

If yes, go here.

No but I still want more information:

I have Questions about Loan Modifications (Q & A)

Tell me more about HAMP (The Home Affordable Modification Program)

Tell me more about Loan Modification Attorneys

Tell me more about the best Loan Modification Do-It-Yourself Guidebook

If a Loan Modification doesn't look like your solution, go here.

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