How to Get a Mortgage Loan Modification

A "loan modification" is a written agreement that permanently changes the promissory note's original terms to make the borrower's mortgage payments more affordable. A modification typically lowers the interest rate and extends the loan's term.

You'll need to contact your loan servicer to get a modification. Typically, you'll have to supply details about your income, expenses, and situation. You'll also usually have to provide supporting documentation.

Even though the process might seem intimidating, most people can apply for and, if they meet investor-specific guidelines, get a modification without paying for assistance.

What Is Loss Mitigation?

"Loss mitigation" is the process where borrowers and their servicer (on behalf of the loan owner or "investor") work together to prevent a foreclosure.

Various loss mitigation options include:

• loan modifications
• forbearance agreements
• repayment plans
• short sales, and
• deeds in lieu of foreclosure.

The most sought-after form of loss mitigation is a loan modification.

How a Loan Modification Works

A modification usually lowers the interest rate and extends the loan's term (say, from 30 to 40 years) to reduce your monthly payments. In some cases, if you're behind in payments, you might be able to add the overdue amount to the balance of the loan as part of a modification.

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

Mortgage Loan Modification Requirements

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

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

In most cases, you'll have to complete a trial period plan, often for around three months, to demonstrate you can afford the new modified amount.

Mortgage Modification Programs and Options

Depending on your mortgage type and circumstances, you might qualify for a government modification program. Different options are available for borrowers with Fannie Mae, Freddie Mac, FHA-insured, VA-guaranteed, and USDA mortgages.

For instance, you might qualify for a Fannie Mae or Freddie Mac Flex Modification if you have one of those kinds of loans. To find out if either Fannie Mae or Freddie Mac owns your loan, call your mortgage servicer or use the Fannie Mae and Freddie Mac online loan lookup tools.

Investors are also free to offer their own in-house modification options, called "proprietary" modifications.

How to Apply for a Loan Modification

To apply for a modification, contact your servicer's loss mitigation department, sometimes called a "home retention" department, and ask for a loss mitigation application. You can find contact information on your monthly mortgage statement or the servicer's webpage.

You'll need to submit the application to your servicer and likely include:

• a completed questionnaire 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
• an income and expense financial worksheet, and
• a hardship statement or affidavit.

Depending on the situation, you might also have to provide additional documentation or answer questions from the servicer.

However, in some cases, the servicer will approve you for a modification without having you submit a full application.

Should I Stop Paying My Mortgage to Get a Loan Modification?

During the foreclosure crisis, it was common for mortgage servicers to recommend to borrowers that they fall behind in payments to get a mortgage modification even if they could afford to make the payments.

While it's true that, in the past, lenders would only consider giving homeowners a modification if they were in default on their loan, this is no longer the case.

Getting a Mortgage Modification While You're Current on Payments

To qualify for most modification programs, you can either be in default or show that you're in danger of falling behind, called "imminent default." But you don't have to actually go into default to qualify.

To qualify for a Flex Modification, for example, you can be behind in payments or show that you're likely to fall behind (and meet other eligibility criteria).

Downsides to Deliberately Falling Behind on Mortgage Payments to Get a Loan Modification

If you deliberately default on your mortgage payments, you might face some negative consequences.

Your credit scores will drop. After you miss a payment or multiple payments, your credit scores will fall. Once your scores fall, it can be difficult to refinance your mortgage, obtain a car loan, or get new credit cards. Even if you subsequently get a mortgage modification, you'll still have negative marks in your credit files.

Past-due amounts add up fast. If you start skipping payments just to try to get a mortgage modification, keep in mind you'll still owe the amounts you don't pay, plus interest and fees. These amounts can add up quickly. Also, once you fall behind, the lender can charge late fees, inspection fees, and various other charges associated with the delinquency.

The more payments you miss, the more fees and interest will accrue. Being far behind in payments can make it significantly harder to catch up if the lender denies your modification request. Ultimately, it could even lead to a foreclosure.

Don't Hire a Loan Modification Company to Help You

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

You'll Save Money, Probably Lots, By Avoiding Loan Modification Companies

Loan modification companies charge a lot for services you can perform yourself. Modification companies collect your application paperwork from you and send it to your mortgage servicer. These companies charge thousands of dollars to act as a middleman.

It's much cheaper to handle the modification process yourself instead of 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.

Efficiency in Responding to Servicer Inquiries and Working Through the Process

If you handle the modification application process yourself, you can promptly respond to any inquiries or requests from the servicer. Loan modification companies often fail to respond to requests from servicers, or they only respond after many weeks or months pass, leading to modification denials.

Also, you're in the best position to deal with any inquiries or requests for additional documentation. Only you know all of your particular situation's details and have access to the paperwork that the servicer might want.

Loan Modification Scams Abound

The vast majority of modification companies are scammers. 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're experts at negotiating a modification, but there's really no trick to it. Little to no haggling happens in the loan modification process. The investor has specific requirements that borrowers must meet to get a modification, and if you meet them, you'll get one.

Getting Help With a Loan Modification

In some circumstances, getting an attorney to help you in the modification process is worthwhile. For instance, if you're having difficulty understanding what you need to do to complete your application, the servicer violates loss mitigation laws, or your servicer isn't responding to you, you might want to talk to a lawyer.

If you can't afford a lawyer, a legal aid organization or HUD-approved housing counselor might be able to help you for free. But don't hire a loan modification company.