How to Get a Mortgage Loan Modification

If you're struggling to pay your mortgage, you might be able to get a loan modification that will lower your payments.

If you're a struggling homeowner trying to make your mortgage payments and avoid foreclosure, a loan modification that lowers your monthly payments might be the ideal solution for your situation.

Even though the process might seem intimidating, most people can apply for and, hopefully, get a modification on their own without paying for assistance.

What Is Loss Mitigation?

Loss mitigation is what the mortgage-servicing business calls the process where borrowers and their servicer, on behalf of the loan owner or "investor," work together to prevent a foreclosure. The various loss mitigation options include a loan modification, forbearance agreement, repayment plan, short sale, and deed in lieu of foreclosure.

Perhaps the most sought-after form of loss mitigation is a modification.

What Is a Loan Modification?

A modification is a written agreement that permanently changes the original terms of the promissory note to make the borrower's mortgage payments more affordable. To reduce the monthly payment amount, a modification typically lowers the interest rate and extends the term of the loan. The modification also normally adds any past-due amounts to the unpaid principal balance as part of the deal.

Lenders and investors usually won't, however, approve principal reductions as part of a modification even if your home is underwater.

What You’ll Need to Show to Get a Modification

To be eligible for a mortgage modification, along with meeting other investor-specific guidelines, you’ll typically need to show that:

  • the home is your primary residence
  • you've gone through a financial hardship, such as you had to take a lower paying job or you went through a divorce, and
  • that you have enough steady income to make regular payments under a modification.

Different Loan Modification Programs

Depending on your situation and circumstances, you might qualify for the Fannie Mae and Freddie Mac Flex Loan Modification program, a modification from another government program, or a proprietary (in-house) modification.

How to Apply for a Modification

If you want to apply for a modification, the first thing you should do is contact your servicer’s loss mitigation department, sometimes called a "home retention" department. You can usually find contact information on your monthly mortgage statement or on the servicer’s webpage.

    The Modification Application

    To get a modification, you’ll need to submit an application to your servicer. You'll probably need to provide:

    • a completed application that includes your personal information, mortgage information, property information, and so forth
    • recent pay stubs or a profit and loss statement if self-employed
    • bank statements
    • tax returns
    • income/expense financial worksheet, and
    • a hardship statement or affidavit. (Generally, to get a modification, you must have experienced a financial hardship but be able to make a modified payment going forward.)

    Don't Hire a Modification Company to Help You

    While it's sometimes useful to hire an attorney to help you in the modification process, in almost all circumstances you should avoid modification companies. Here's why.

    You'll save money. Loan modification companies charge a lot for services you can perform yourself. Modification companies offer to act as a middleman between you and your servicer in the modification process. They gather up your paperwork and send it the the servicer. It's much cheaper handle the modification process yourself rather than paying someone else to do the legwork for you. Also, many modification companies are scammers who will do little or nothing to help you in the process.

    Scams abound. The majority of modification companies are scams. They'll take your money and you’ll get very little in return, certainly nothing that you couldn’t have done yourself. These companies might tell you they are experts at negotiating a modification, but there's really no trick to it. There's very little negotiating that occurs in the process—the loan owner has certain requirements that borrowers must meet in order to get a modification, and if you meet them, you'll get one.

    Efficiency in responding to inquiries. If you work on the modification process yourself, you can respond to any inquiries or requests from the servicer in a timely manner. Loan modification companies often fail to respond to requests from the servicer, which can lead to the modification request being denied. Also, you are in the best position to respond to any inquiries because only you know all of the details of your particular situation.

    Getting Help

    If you find that you're having difficulty understanding what you need to do to complete your application or are having problems dealing with your servicer, rather than hiring a loan modification company, consider talking to an attorney or a HUD-approved housing counselor.

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