Loan modification program is an option that is provided by the bank to the home loan borrowers who are not able to pay off their mortgages due to a financial hardship. A Loan modification program consists of modification of any or all of following terms and condition of loans:

• Resetting the interest rate,
• Payment deferment for a particular period of time
• Readjustment of principal amount;

The terms of loan modification may vary from bank to bank.

Most of the banks proactively approach borrowers who have been delinquent for more than three months; the borrowers can also approach the bank in anticipation of financial hardship that can lead to default in mortgage payments.

The broad eligibility criterions for entering into home loan modification program are as follows:

• The loan should be held and serviced by the bank from which the home loan modification is sought.
• The debt to income ratio of the borrower should be more than 31%:  This is to make sure that income of the borrower is enough to spare for the modified mortgage payment after taking care of the all the monthly expenses.
• The loan modification is allowed only for the first mortgages of the borrower.
• The property on which loan modification is sought by the borrower should be the primary residence of the borrower. This is to discourage the owners seeking home loan modification on properties for investment purpose.
• The interest rate reduction will not be less than 2%.

Loan modification is a federally backed program and all the major lending institutions and banks such as Federal Housing Finance Agency (FHFA) including Fannie Mae or Freddie Mac, Citigroup, Bank of America, JP Morgan Chase

The process of entering into home loan modification program is as follows:

1. The borrower has to furnish proof of income via pay stubs, tax returns and verification letter from the employers.
2. The bank then calculates the modified mortgage payments at around 31% of debt to income ratio. The modified mortgage payment includes taxes, insurance and all the fees barring late payment fees. If the mortgage payments are more than 31% of the income, the lender will lower the interest rate by 0.125% till the mortgage payment amount reaches higher side of 31%. If the mortgage payments still come out to be more than 31% then a lump sum principal  amount is due payment at the end of the  payment period.

Home loan modification is a very easy and can save your home from undue foreclosures.

One good option for newbie is to seek assistance from specialized service providers for successfully getting home loan modification. The expert personnel of these companies can help you from properly filling up the documentation to successfully negotiating with the bank for a home loan modification.

A well written hardship letter not only coherently expresses your need but is also a documentation that stays with the application file to tell your story when you are not there.While you do not want to make your hardship letter verbose and lengthy at the same time be sure not to leave out any necessary details that you must point out in the letter. For making the letter as compelling as possible you can even consider professional help if you need to but keep in mind that you are the best judge of the situation you are in.

There is no recommended format, but a well written hardship letter should contain the following:

Loan Number: This is your ID and can be noted down from the mortgage statement.

Name: Should have the name as mentioned in the loan form and property address.

Phone Number & Contact address: The number should be one where you are most of the times available. A good idea is to also mention the second best number that can be contacted if you are not available on the primary phone number. Give your contact address which is most easily verifiable by bank personnel if need be.

Subject: A good hardship letter would contain the valid reasons for seeking the home loan modification by the home owner could be disability to work, hospitalization or loss of job even could be adjustment of mortgage loan.

A Sample hardship letter goes like this:

Name: (As mentioned in the loan papers)

Primary Address and contact number: (As mentioned in the bank records)

Lender Name: (Bank you are sending plea to)

Loan No.: (As mentioned in the bank papers)

To Whom It May Concern:

We are a home loan borrower from you esteemed bank. This hardship letter seeks to address the reasons behind our delinquency in our mortgage payment. We purchased our dream home in summer of 2007 but fell behind in our mortgage payment due to unforeseen circumstances. State the reason for delinquency (loss of job, medical emergency etc) and how this has put you and your family in the groove of dire financial difficulties. Be specific with dates about when did the difficulty start?

Mention the nature of hardship whether it is temporary or permanent. If it is temporary (for example you had a job loss) how long would that last? If it is permanent hardship, explain to the bank that what that means.

In the end talk about the solution that you propose, (for example you lost a job and now you have got a job but with a lower salary, state how much is your current salary and how the modification will bring you back on the track. Be specific with the type of modification that you desire (Whether it is interest rate modification, fixed rate, short sale, reduction in the principal amount or payment deferment e.t.c)

We thoroughly appreciate your valuable time and attention paid to our concern and look forward to working with your.

Sincerely and Respectfully,

Borrower’s (Name and Signature)

Date

Co-Borrower’s (Name and Signature)

Date

If you follow this sample loan modification hardship letter it will greatly improve your chances of success in applying for a modification.

We list below many of the common Myths we have come across during our time researching.

Myth 1: You must be late on your mortgage payments in order to be eligible for a loan modification program?

No, this is rubbish even if you haven’t missed any payments you can still apply. You may get more attention if you have been late or have missed a payment, but you can still apply for help on your mortgage from your lender.

Myth 2: A Loan Modification is only required during a foreclosure

This is one of the biggest myths. Most homeowners believe that they can only apply when on the verge of losing their home. A loan modification adjusts your monthly mortgage payment according to your current financial condition so if you are struggling to pay because your interest payments have increase or your situation has changed a loan modification can help you.

Myth 3: Lenders would rather you foreclose than try to modify your loan.

This is exactly the opposite as Mortgage lenders actually lose a lot of money and is a very time consuming process if you foreclose. So they want to avoid foreclosure as much as you do. With failing house prices and no one buying real estate at this moment a foreclosure is very costly for lenders.

Myth 4: Can a Loan modification can hurt my credit rating.

Most loan modifications will not hurt your credit rating score. There may be extreme cases where it can, but this depends on the lender and the type of modification.
A loan modification is just like refinance or re-mortgaging. So really they should help your credit rating as now you can afford your monthly payments without problems. Even the worst case if a modification did slightly hurt your credit rating, just imagine your credit score if you foreclose on your house.

As in the case with any loans or financial ventures, for mortgage modification also you can consult with an expert who can guide you through the entire process. However, it will be great to have a good knowledge about mortgage modifications and the advantages one will get for that. Normally a mortgage modification will bring a lot of advantages to the person who applies for it since he will get a lot of time to repay the money. The burden of heavy monthly payments will be reduced and the main purpose of the modifications is to make the loan more affordable. If effect it helps not only the borrower but also from the lender from financial crisis.

Mortgage modification loan is quite different from refinancing and it does not require any fees to be paid. The only condition is that you should satisfy certain criteria and after that the lender will approve mortgage modification and it helps you to pay back the money in easy installments. When applying for loan modification you need to convince the lender that you are experiencing financial hardships so that you need a change in the structure of the loan. If the other party will then assess your situation and your financial future to assess whether you will be able to pay back the money in future.

Mortgage modifications were not so common in the past but with the latest developments in the county, now it is very common in the United States and it is proven to be the best solution to prevent a foreclosure. In simple terms the borrower can retain their homes and the lender will get an assurance of repayment. Though seems to be a simple affair, one has to convince the lender that your appeal is a genuine one and you have no intentions of fraud or any such things. So they will assess every situation and if they find it genuine, then they will approve your cause.

After the recent financial crisis many of the banks and financial institutions are keen on loan modifications as they do not want to foreclose any home and they are willing to strike, as they are ready to prefer a way that helps them to get back their money. Mortgage modification is a legal process that cannot be done alone. New government polices have encouraged mortgage modifications and there are special incentives for that to the lenders. Look for the right options and make use of it to the maximum.

Under the loan modification program some guidelines are issued. Some of the features of the guidelines are given here. The basic intention of the program is to reduce the monthly mortgage payment of the borrower. The lending institution has to bring down the monthly payments to 38% of the front-end-debt to income ratio of the borrower, or below that level. The ultimate aim of the loan modification program is to bring down the front-end-debt to income ratio to 31%. Any amount reduced by the lender below 38% will be matched by the Federal Government until the ratio reaches 31%. In other words, up to 3.5% below 38% borne by the lender, the government will also pays an equal amount. The service providers will be paid $1000 for every modification on these lines brought about by them. This will continue to be paid every year for three years if the borrower remains in the program during that period. This is called the Servicer Incentive Payment.

Borrowers are also eligible for an annual payment of $1000 for five years provided they pay the dues on time. This payment, called the Pay-for-Performance Success will be in force for five years. This will go to reduce the principal amount owed by the borrower. Under the loan modification program, the lender is eligible for a one time payment of $1500 and the service provider $500 if the borrower is current on mortgage payment and he/she is granted the facility mentioned above. The service provider is required to enter into an agreement with Treasury’s financial agent before participating in the program. Otherwise, no payment will be made to the lender, borrower or the service provider under the loan modification program.

For eligibility to be included in the loan modification program certain conditions are laid down. The mortgage to be modified must have begun before January 1, 2009. The property must be the primary residence of the borrower and it should be verified by proper documents. The home must be occupied by a single family. The service providers must consider all eligible loans for loan modification program. Even if the borrower is on litigation with the lender about the loan, still the borrower is eligible for consideration for loan modification program. The borrower will not forfeit any of his rights under dispute. During the consideration for loan modification program no foreclosure proceedings are permitted. Likewise, all foreclosure actions will be suspended until after any move for alternate foreclosure has failed.

The home loan modification plan is for the people who cannot afford to pay the monthly payments. The home loan refinancing plan is meant for the people who make the monthly payments on time. Such people can negotiate for a lower rate of interest. Borrowers, lenders and the service providers are all given incentives and subsidies under the Making Homes Affordable program. Over nine million people of the United States of America are benefited by the scheme.

Home loan modification is actually for the people who find it difficult to pay the monthly mortgages. There are several reasons for their inability to pay up. The income of the mortgagees might have come down. Or the interest rate might have been raised by the lender. In both cases the borrowers cannot pay up mortgages. The home loan modification plan gives incentive to lenders and service providers so that they can bring down home loan payments to 31% of the borrower’s income. In the loan modification plan the length of time given for repayment is extended to keep the monthly payments within affordable limits. The interest rate is also reduced, so that the total liability of the borrower is reduced to a significant extend. The lender also may be interested in reducing the liability of the borrower because the cost is much less to him than when the borrower never pays at all.

There are certain conditions for availing the benefits of the home loan modification scheme. The first is that the property in question must be the primary residence of the borrower. The second condition is that the amount owed on first mortgage should be $729,750 or less. The borrower must have genuine difficulty for payment of the mortgage to qualify for the home lone modification. Genuine difficulty means the borrower’s inability to pay due to hardships like increased medical bill, reduced income or a considerable increase in the monthly mortgage payments. The monthly payment due on the first mortgage must be more than 31% of the gross income of the borrower. The gross income is calculated before tax and adjustments. The mortgage dues include principal, interest, taxes, insurance and home owner’s association dues. The mortgage in question must have been obtained before January 1, 2009.