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What is a Loan Modification?

It is usually known as a "loan modification" but can also be referred to as a "mortgage modification", "restructuring", or "workout plan". This is when a borrower, who is facing great financial hardship and is having difficulty making their mortgage payments — works with their lender to change the terms of their mortgage loan. The modification could result in temporary or permanent changes to the mortgage rate, term and monthly payment of the loan. The plan's goal is to help the borrower reduce their monthly mortgage payments to 31% of their gross income.

Who Qualifies for a Loan Modification?

According to The Department of Treasury: "Anyone with high combined mortgage debt compared to income or who is 'underwater' (i.e. having a combined mortgage balance that is higher than the current market value of the house) may be eligible for a loan modification. This initiative will also include borrowers who show other indications of being at risk of default. This program applies to borrowers who are unable to make, or are struggling to make mortgage payments that exceed 38% of their monthly income. If the lender agrees to lower the interest rate or reduce the principal amount to bring the payment to 38% of the borrower's income, the government will pay half of the additional cost to the lender to reduce the payment to 31% of the borrower's income."

Who is Not Eligible for a Loan Modification?

Speculators — or those who bought homes for investment purposes. All homes must be owner-occupied. Also, mortgages with amounts above the conforming loan limits would not be eligible.

Qualification

Answer the questions below to find out if your circumstances merit a modification evaluation and consultation.

Qualification Criteria
Yes     No	1. Do you have a valid hardship such as income reduction, divorce, medical or an adjustable mortgage that is getting ready to adjust?
Yes     No	2. Are you currently behind on payments or foresee that you soon will be behind?
Yes     No	3. Do you believe that the amount you owe on your mortgage(s) is greater than the current value of your home?
Yes     No	4. Have you attempted to work with your mortgage company to resolve your situation?
Yes     No	5. Are you still gainfully employed?
Yes     No	6. Does your current payment exceed or meet 38% of your total gross income?
Yes     No	7. Do you owner-occupy the property?