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 avoid foreclosure, a loan modification that lowers your monthly mortgage payment might be the perfect solution for your situation. Even though the process might seem intimidating, you can apply for and (hopefully) get a modification on your own without paying for assistance.

Read on to learn more about how modifications work, how to apply for one, and how you can navigate the process on your own.

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) 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.

Understanding Modifications

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, the 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.

Generally, loan owners don't like to approve first-mortgage principal reductions as part of a modification. But some programs under the Hardest Hit Fund combine principal reduction assistance with modifications.

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.

Laws That Help Homeowners in the Modification Process

As a result of loan servicing problems during the mortgage crisis, new rules and laws designed to protect homeowners in the modification process came about. For example:

  • On January 10, 2014, mortgage servicing laws designed to protect borrowers when it comes to mortgage loans and loss mitigation went into effect.
  • Some states, like California, passed a Homeowner Bill of Rights, which regulates how servicers handle modification applications. Nevada, Colorado, and Minnesota, for example, also passed similar laws.

Now, servicers generally try to work with customers who are facing financial difficulties to keep them in their home if at all possible. They have increased their personnel and streamlined the process to better keep up with increased modification requests.

How to Apply: Contact Your Servicer’s Loss Mitigation Department

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 typically 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. Often you’ll need to provide:

    • a completed application (including 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.)

    (To learn what to do—and what not do—in the modification process, read Do’s and Don’ts for Getting a Loan Modification.)

    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. Usually, these companies do little more than 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 paperwork for you.

    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. (In some cases, though, it's a good idea to hire an attorney to help you with the modification process. For example, if the servicer violates the law, an attorney might be able to use this as leverage to get your loan modified. Learn more in Should I Hire a Lawyer to Help My Mortgage Modification?)

    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. (Learn about using a HUD-approved housing counselor.)

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