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Mortgage Modificiation Explained


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TERMINOLOGY

For people who are falling behind on their mortgage payments and are looking to avoid foreclosure, mortgage modification may be the answer. Mortgage modification works to adjust the terms of the loan, reducing the payments to a level families can afford. In the time where no documentation and stated income loans were once popular, many people got into houses that they really could not afford, leading them to turn to mortgage modification to help them out. However, this program has a few requirements that must be met before it can be applied. 

Eligibility Requirements

In order to qualify for mortgage modification, the following conditions must be true:

  • The mortgage must have been originated on or before January 1st, 2009.

  • No one may enter the program after December 31, 2012. Payments made through the program will continue for up to five years from the date of entry into the program. 

  • The home must be owner occupied, and cannot be larger than a 4 family dwelling.

  • The home cannot be owned by an investor

  • The home must serve as the primary residence and be verified through means such as a credit report.

  • The home cannot be condemned or vacant.

  • The first lien must be less than $1,403,400 for four units, $1,129,250 for three units, $934,200 for two units, and $729,750 for single units.

  • The payment should be at least 31 percent of the monthly gross income.

Borrowers who are in bankruptcy proceedings may still be eligible for the program. Any borrowers in litigation may elect to become part of this program without waiving any legal rights. Those who are in foreclosure will have the foreclosure process stopped temporarily. This mortgage modification program can only be used one time. If you think you may qualify based on the information you see here, speak directly with your loan servicer to find out more. Only the loan servicer will be able to tell you if you qualify and reduce the amount of your monthly payment.

What Happens During Mortgage Modification

Assuming all other conditions are met, the program will work to reduce the amount of the payment to no more than 31 percent of your monthly gross income. This is usually done through a reduction in interest rate. The difference between the payment and the balance of the loan may become due at the end of the loan term in a balloon payment. If you sell the home, the difference may also become due at once. The lender will be able to provide you with specifics of what will happen during the process, as well as inform you of what happens if you sell the home or miss any of the reduced payments. Once the loan is modified, it is very important to not miss any payments because it could result in foreclosure.