Steps to Get Your Mortgage Loan Modified

A loan modification might reduce your monthly payments and prevent a foreclosure.

If your mortgage has become unaffordable, a loan modification might reduce your monthly payments and keep you out of foreclosure. With a modification, the lender agrees to change the terms of the loan to, hopefully, make the payments more within your means. To decrease the payment amount, a modification usually involves lowering the interest rate and extending the term of the loan. The lender also typically adds any overdue amounts to the unpaid principal balance to bring the loan current.

But who qualifies for a modification? Eligibility is based on guidelines that the lender (or subsequent loan owner, called an “investor”) develops—and not everyone will be approved. Though, if you meet the program guidelines and take all the necessary steps, you’ll get one.

In this article, you’ll learn what a servicer (the company that manages the loan account on behalf of the lender) ordinarily looks for when evaluating a borrower for a modification and what steps you’ll need to take in the process.

Basic Eligibility Requirements to Get a Modification

No law details explicitly who qualifies for a loan modification, and who does not. But lenders tend to have similar guidelines and criteria when considering whether to modify a borrower's loan.

In general, most lenders look at:

  • Your finances. As part of the review process, the servicer will evaluate your income, loan payment, and financial circumstances.
  • Whether you have a valid economic hardship. Lender guidelines almost always require the borrower to have experienced a hardship that has made the current payment amount unaffordable. A valid financial hardship is an event that was generally unavoidable or outside of your control, like the death of a coborrower, job loss, or a divorce.
  • Ability to pay. Lenders want to see that you have some source of regular income, although the amount of income might be less than what it was when you took out the loan. For example, a borrower who has resumed earning income after a period of unemployment might qualify for a modification that lowers the monthly payments.

The exact criteria that a borrower has to meet varies from lender to lender. Depending on the type of loan you have and your circumstances, you might qualify for a Fannie Mae or Freddie Mac modification, an FHA modification, or a proprietary (in house) modification.

Documents You’ll Need to Provide With Your Application

To get a modification, you’ll need to submit a complete application to your servicer. As part of that application, you’ll need to provide specific documents. While the exact list of documents your servicer will require might differ from the list below, the following items are generally required as part of an application:

  • an income and expenses financial worksheet
  • tax returns (often, two years’ worth)
  • recent pay stubs or a profit and loss statement
  • proof of any other income (including alimony, child support, Social Security, disability, etc.)
  • recent bank statements, and
  • a hardship letter or affidavit.

Make Sure Your Application is Complete

To receive certain protections against foreclosure under federal (and some state) laws while your modification request is pending, you have to send your servicer a "complete" application. This means you must submit every document the servicer requests, including all pages. So, even if page four of your bank statement has no information, if the other pages say “Page 1 of 4,” “Page 2 of 4,” and “Page 3 of 4,” you need to send all four pages. Otherwise, the servicer will probably consider the document—and your application—incomplete. Servicers often deny loan modifications due to incomplete applications.

After you’ve sent in your application, stay in contact with the servicer. Call the server at least once each week to get an update about the status of your file. Take notes whenever you speak to the servicer; write down the name of the person you talk to and describe what you discussed. (Your notes could become important if you decide to fight the foreclosure in court based on the servicer’s actions or inactions.) Also, be sure to ask the servicer if you need to send in any updated documents.

The servicer will review your application along with the supporting documentation and, if you meet program guidelines, you’ll get a modified loan.

When to Seek Legal Counsel

If you need help putting your modification application together, a HUD-approved housing counselor can help you at no cost.

If you’re facing a foreclosure and have legal questions, consider talking to an attorney to get advice about how to deal with your situation. You might also consider talking to a lawyer if you’re trying to get a modification, but the servicer isn’t complying with the law or is treating you unfairly. Legal violations could give you leverage in the modification process. (To learn when you should consider hiring a lawyer to help you with a modification, see Nolo’s article Should I Hire a Lawyer to Help With My Mortgage Modification?)

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