What Is a Mortgage Loan Modification & How Do You Apply for One?

What Is a Mortgage Loan Modification & How Do You Apply for One?

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There are circumstances like the loss of a job, illness, divorce, and other life-changing events which can happen to anyone, which can cause you to fall behind on your mortgage payments. Unfortunately, when you can’t make your monthly loan payments, you risk having your home go into foreclosure.

The good news is that there are programs available to help homeowners keep their home and prevent foreclosure during times hardship. A loan modification is one such option which can provide some financial relief by having changes made to the original terms of your mortgage loan.

What is a loan modification?

A loan modification is when a change made to the existing terms of a mortgage by the lender, as a result of a borrower’s long-term inability to repay the loan. The goal of a loan modification is to reduce your monthly payment. This outcome can be achieved by lowering the principal loan amount, decreasing the interest rate, converting to a fixed rate, or extending the life of the loan.

What is the difference between a loan modification and refinancing?

Refinancing involves replacing your existing loan with a new mortgage, whereas a loan modification only changes the terms of your current mortgage.

What is the difference between loss mitigation and a loan modification?

Loss mitigation is the process where borrowers and their servicer work together to prevent a foreclosure. The servicer is the company that handles your loan account, which may be the same as the loan owner, or they’re working on behalf of the loan owner.

A loan modification is one option of loss mitigation, and usually the most sought-after because it’s a win-win for both the lender and the borrower.

Other loss mitigation options include a forbearance agreement, repayment plan, short sale, and deed in lieu of foreclosure.

Why would lenders agree to modify loans?

Offering a borrower a loan modification is a better alternative than foreclosing or agreeing to a short sale, which both are more expensive and time-consuming for lenders.

What loan modification programs are available?

Many lenders and servicers offer their own loan modification programs, which can provide temporary or permanent changes to your loan terms. You can find a list with the loan modification and/or contact information for 70+ lenders here.

If your lender or servicer doesn’t have its own program, you should inquire if you’re eligible for any of the assistance programs below which can help you modify or refinance your mortgage.

The Home Affordable Modification Program or HAMP was previously offered by the federal government in response to help homeowners during the 2008 housing collapse, but it expired in 2016.

Fannie Mae and Freddie Mac now offer the Flex Modification program, which is a foreclosure prevention program that went into effect in October 2017. To be eligible to participate in this program, your mortgage must be owned or guaranteed by either Fannie or Freddie.

The federal Home Affordable Refinance Program, or HARP, helped struggling homeowners refinance for a more affordable mortgage, but it’s no longer available as of the end of 2018. Fannie Mae’s High Loan-to-Value Refinance Option and Freddie Mac’s Enhanced Relief Refinance replaced HARP.

Who qualifies for a loan modification?

Each program has its own qualifications and requirements, which are typically based on the amount still owed on the loan, the property being used for collateral, and specific features and the condition of the collateral property. If you’re not keeping their collateral in good condition, they are unlikely to modify the loan.

Not everyone struggling to make their mortgage payments qualifies for a loan modification. Some lenders require that you must be delinquent on your mortgage payments for about 60 days, or that you’re showing signs of imminent delinquency.

Also, you must demonstrate your financial hardship and what caused it, such as job loss, death of a family member, disability, etc. and how it’s affecting your ability to make your mortgage payments.

What is the process for applying for a loan modification?

It’s best to start with a phone call or email to your lender and let them know about your current financial situation and explain why it’s difficult for you to make your mortgage payments right now.

You’ll need to fill out an application and provide detailed information on your finances. Be prepared to submit the following:

  • Income: All the money you take in through earnings and other sources.
  • Expenses: How much you spend each month on your car, utilities, groceries, etc.
  • Documents: Proof of your financial situation, which can include pay stubs, bank statements, tax returns, outstanding debts, etc.
  • Letter of Hardship: Explain the circumstances which are affecting your ability to make your current mortgage payments, and how you are trying to rectify this situation.
  • IRS Form 4506-T: This form allows the lender to access your tax information from the IRS if you can’t or don’t supply it yourself.

The application process alone can take several hours or even days, as you’ll have to fill out many forms, gather information, and submit everything in the format required by your lender. Your application can be delayed or rejected if something your lender requires is missing or outdated.

It might be several weeks before you receive a response, and it can take even longer for the changes in your loan to take effect, even after you get approved. Keep in frequent contact with your lender during this time, and do whatever they ask of you, such as continuing to make payments during the application process, if that’s one of their requirements. If you’re not sure of anything, check to assure that you’re complying with what’s needed.

What is a hardship letter and what should it include?

The hardship letter you submit with your loan modification application should explain in detail the events which happened that are affecting your ability to make your current mortgage payments, and how you are planning to rectify this situation.

It should show that your financial hardship is out of your control, such as a job loss, illness or death of a family member. If your financial hardship is due to, say, purchasing a new car, and that’s why you can’t afford your mortgage payments now, your application will likely be rejected. However, if it’s due to a job loss and you state that you are actively looking for a new job, that could help.

How often can you apply for a loan modification?

There are no limits on the number of times you can apply or request to have a loan modification. However, if you try to change your loan too frequently, you may hurt your chances of actually getting approved for the modification.

What are the reasons someone may be denied a loan modification?

Lack of documentation is a primary reason that a lender will reject a loan modification request. Although they are required to notify borrowers of missing documents and provide them with the opportunity to produce such, it is not always the goal of a lender to assist you in this process.

Another potential reason for denial is not proving financial hardship, having too many assets to qualify, or the opposite, which is not being able to afford even the modified monthly payment.

Also, sometimes there are technical reasons you may be denied. For example, if you’ve already been approved for a loan modification during the past twelve months.

Are all loan types eligible for a loan modification?

It might be easier to qualify for a loan modification depending on the type of loan you have. If you have an FHA loan, VA loan, or USDA loan, you may be eligible for relief, and some federal and state agencies can also help. It’s best to speak with your loan servicer or a HUD-approved counselor to obtain more details.

Do you need a loan modification attorney or can you file it yourself?

Hiring an attorney to represent you or at least consulting with one, before applying for a loan modification or during the application process, might be a good idea if:

  • You’re facing foreclosure, and you’re not sure if a loan modification is the best solution for your situation. An attorney can help you understand your legal rights and provide advice on your best course of action, which may be fighting the foreclosure in court, or giving up the property in a short sale or deed in lieu of foreclosure – instead of pursuing a loan modification.
  • Don’t understand or need help with the loan modification application process, and providing the appropriate documentation, including the hardship letter.
  • Your loan modification request is denied, and you want to appeal the decision.

If none of the above apply to you, then you most likely can handle applying for a loan medication on your own, without using an attorney.

Should I hire a loan modification company to help with my application?

While it may be helpful to hire an attorney, you should avoid loan modification companies. These companies charge a significant amount of money for services you can do on your own, and all they do is act as the middleman between you and your servicer. This service may do more harm than good, as communication and important documents can get lost through the cracks.

Additionally, many loan modification companies are scammy, so in general, it is best to stay away from them.

What happens after a loan modification is granted?

If your loan modification request is approved, it will likely be granted on a temporary trial basis. This trial basis is to show your lender that you’re able to make the new mortgage payment for a period of time, which is usually 90 days.

If you miss any payments during this trial period, then your lender has the right to withdraw its approval of your application.

If you make your mortgage payments on time, then you’ll be sent a permanent loan modification agreement, which must be signed and returned along with additional documents your lender requests, such as proof of homeowner’s insurance. Once received by your lender, your trial modification becomes permanent.

Can you avoid foreclosure with a loan modification?

Yes, if you’re approved for a loan modification and you can make your new monthly mortgage payments on time, you can prevent your home from being foreclosed.

However, applying for a loan modification does not mean that the foreclosure process will immediately stop. As the loan modification application process can take several weeks, if it’s not approved before the foreclosure sale date, then you may not be able to prevent the foreclosure.

Therefore, the sooner you apply for a loan modification, the better your chances are of preventing or delaying a foreclosure.

Where do I start to apply for a loan modification?

If you’re struggling to make your mortgage payments, contact your loan servicer to ask about your options and begin the application process. You can review this list of mortgage lenders to review your servicer’s specific requirements and/or contact information, so you speak with them directly about your situation.

Is there anything specific I need to know about loan modifications in Texas?

While each state, including Texas, has its own foreclosure laws and homeowner protections in place, there are federal mortgage servicing rules which went into effect on January 10, 2014.

These rules were designed to protect borrowers when it comes to foreclosures, and in 2017, they were amended to better protect homeowners by:

  • Ensuring servicers provide a borrower with assistance if the borrower is having difficulty making mortgage payments
  • Protecting borrowers from wrongful actions by servicers

During the housing crisis that began around 2008, the number of homeowners in financial distress increased exponentially. Servicers couldn’t keep up with the increased demands for information and assistance, and as a result, servicing errors were abundant.

Now, there must be continuity with the borrower’s point of contact at the servicing company, and that contact must be available to the borrower during any loss mitigation process, including applying for a loan modification.

Will getting a loan modification negatively affect my credit?

A loan modification will be less impactful on your credit than a foreclosure. However, as some lenders may require your mortgage be at least 90 days late before processing your modification application, that in itself can hurt your credit, even though it’s a requirement.

The good news is that once your loan modification is approved, your new, reduced mortgage payments will hopefully free up more of your income so you can pay down other debts. If you keep your debts low and continue to pay your creditors on time, your credit score will improve over time.

My loan modification was denied. Now what?

If your loan modification application has been denied, you can appeal the decision working with a lawyer, if you feel the decision was made in error. If your only other choices are filing for bankruptcy or facing foreclosure, this is where AMI can help.

We can make you a cash offer on your home and cover all closing costs. Selling the house to a cash buyer would allow you to sell your home quickly, so you can use the sale proceeds to work on repairing your finances and/or buy a new home, while avoiding the hassles, fees, and skip the time it can take to sell your home on the market.

Fill out this form to receive a no-obligation cash offer, regardless of what condition it’s in or what situation you are currently facing. If you accept our offer, we can close in 10 days or less.

Find the Loan Modification Information for Your Mortgage Company

Mortgage Company / ServicerLoan Modification WebpageDocuments Page LinkLoan Mod Number
Allegiance BankProgram InformationNo dedicated page1-281-894-3200
Amcap MortgageProgram InformationNo dedicated page1-844-MYAMCAP
Amerihome Mortgage CompanyProgram InformationNo dedicated page 1-888-469-0810
Bank of AmericaProgram InformationNo dedicated page1-800-846-2222
Bank Of New York MellonProgram InformationNo dedicated page1-855-284-9065
Bayview Loan ServicingProgram InformationNo dedicated page1-800-457-5105
Caliber Home LoansProgram InformationRequired Documentation1-800-401-6587
Carrington Mortgage ServicesProgram InformationRequired Documentation1-800-561-4567
Carrington Mortgage ServicesProgram InformationRequired Documentation1-800-561-4567
Champion MortgageProgram InformationNo dedicated page1-855-683-3095
ChaseProgram InformationRequired Documentation1-800-848-9380
CitibankProgram InformationNo dedicated page1-866-272-4740
CitimortgageSame as CitibankSame as CitibankSame as Citibank
CitizensProgram InformationNo dedicated page1-800-922-9999
Colonial National MortgageProgram InformationRequired Documentation1-800-937-6001
Compass BankProgram InformationNo dedicated page1-800-239-1940 
Cornerstone Home LendingProgram InformationNo dedicated page1-877-621-4663
Deutsche BankProgram InformationNo dedicated page1-800-356-2539
Ditech FinancialProgram InformationRequired Documentation1-800-700-9212
Finance of America ReverseProgram InformationNo dedicated page1-855-4214745
First Guaranty Mortgage GroupProgram InformationNo dedicated page1-877-609-5500
First Service Credit UnionProgram InformationNo dedicated page1-800-678-5197
Flagstar BankProgram InformationRequired Documentation1-800-393-4887
Freedom MortgageProgram InformationNo dedicated page1-855-690-5900
Guild Mortgage CompanyProgram InformationNo dedicated page1-800-365-4884 
Homebridge Financial ServicesProgram InformationNo dedicated page1-855-248-0530
HSBC BankProgram InformationNo dedicated page1-855- 527-8401
International Bank of CommerceProgram InformationNo dedicated pageVaries
Jet LendingProgram InformationNo dedicated page1-281- 872-7800
JP Morgan ChaseProgram InformationRequired Documentation1-800-848-9380
Lakeview Loan ServicingProgram InformationNo dedicated page1-855-294-8564
Lendinghome Funding CorporationProgram InformationNo dedicated page1-844-277-9562
Loan CareProgram InformationNo dedicated page1-800-274-6600
LoanDepot.comProgram InformationNo dedicated page1-888-983-324-
M&T BankProgram InformationNo dedicated page1-800-724-1633
Mid America MortgageProgram InformationNo dedicated page1-866- 544-7013
Midfirst BankProgram InformationNo dedicated pageVaries
Money SourceProgram InformationRequired Documentation1-866-867-0330
Mr CooperProgram InformationRequired Documentation1-888-480-2432
Nations DirectProgram InformationNo dedicated page1-866-499-5420
NationstarSame as Mr. CooperSame as Mr. CooperSame as Mr. Cooper
Navy Federal Credit UnionProgram InformationRequired Documentation1-888-503-7102
NewrezProgram InformationNo dedicated page1-888-673-5521
NexbankProgram InformationNo dedicated page1-800-827-4818
OcwenProgram InformationRequired Documentation1-800-746-2936
Paramount Residential Mortgage GroupProgram InformationNo dedicated pagebranch specific
Pennymac Loan ServicesProgram InformationRequired Documentation1-866-545-9070 
Pingora Loan ServicingSame as BayviewSame as BayviewSame as Bayview
Planet Home LendingProgram InformationNo dedicated page1-866-882-8187
Plaza Home MortgageProgram InformationNo dedicated page1-888-807-2620
Prosperity BankProgram InformationNo dedicated page1-800-531-1401
Quicken LoansProgram InformationNo dedicated page1-800-610-5499
Regions BankProgram InformationRequired Documentation1-800-748-9498
Reverse Mortgage SolutionsProgram InformationNo dedicated page1-888-918-1110
Roundpoint Mortgage ServicingProgram InformationNo dedicated page1-877-426-8805
Rushmore Loan Management ServicesProgram InformationNo dedicated page1-888-504-7300
Seattle BankProgram InformationNo dedicated page1-888-500-2265
Select Portfolio ServicingProgram InformationRequired Documentation1-888-818-6032.
SeterusSame as Mr. CooperSame as Mr. CooperSame as Mr. Cooper
Shellpoint Mortgage ServicingProgram InformationNo dedicated page1-866-467-1137
South Trust BankProgram InformationNo dedicated page1-800-277-2175
Specialized Loan ServicingProgram InformationNo dedicated page1-800-315-4757
State BridgeProgram InformationNo dedicated page1-866-HOME-360
Suntrust BankProgram InformationRequired Documentation1-800-443-1032
Texas First BankProgram InformationNo dedicated pageVaries
Union home Mortgage CorporationProgram InformationNo dedicated page1-800-767-4684
US BankProgram InformationNo dedicated page1-800-365-7900
Wells FargoProgram InformationRequired Documentation1-800-678-7986
Wilmington Savings FundProgram InformationNo dedicated page1-877-283-4530

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