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Mortgage Modification

Mortgage modification: who can modify a mortgage?

Loan modification is the process of renegotiation of the terms of repayment of a mortgage so that the loan repayment amounts are more affordable and hence easier paid. When the terms of the original mortgage are renegotiated between the lender and the borrower, the process can be defined as loan modification.

Basically, a borrower will obtain a loan, referred to as a mortgage, in order to purchase real estate property, usually a home. The repayment of the loan as well as interest on the loan is agreed upon and payments made according to the agreement. The home usually remains the property of the lender, in this case the bank, until the loan is fully repaid, complete with all the interest due. However, in some instances or some rare occasion, the borrower can be unable to repay the loan according to the agreed terms and conditions initially agreed upon. Such a situation may lead to a loan modification negotiation.

Lenders and lending institutions such as banks are normally willing to renegotiate the terms of a mortgage. For a borrower to be eligible to qualify for a modification of their mortgage, they need to meet certain criteria. To qualify for loan modification, an applicant should be able to demonstrate financial hardship in their current situation. Such financial hardship may be the loss of a job or regular income, collapse of a business and other situations. A second requirement is the writing of a letter requesting a modification of the loan. This letter is referred to as a hardship letter and is supposed to demonstrate the kind of hardship the applicant is going through.

There are opportunities from the federal government that qualify individuals for loan modification. HAMP or Home Affordable Modification Program is a federal assistant program that seeks to assist home owners with their home repayments. To qualify for this program, an individual needs to exhibit difficulty in making their regular mortgage repayments and their repayment amounts should be at least 31 per cent of their total income. Those who qualify for this federal government program will benefit as the federal government will offer incentives to their lender to accept a loan modification for the applicant.

Successful applicants for the loan or mortgage modification program will need to be able to negotiate with their lender the new terms of mortgage repayment amounts as well as length of time in between payments. An applicant may, for example, request a grace period before resuming mortgage payments. When renegotiating mortgage repayments, documentary evidence, such as bank statements, may be required so as to help the lender determine the most suitable and affordable repayment amounts.

Date: 13 May 2012