Who qualifies for loan modifications?

Slowing economic activity, job cuts and slumping home values make borrowing money increasingly difficult. Foreclosure rates are hitting record highs. If you can’t make your mortgage payments, there's a good answer to the problem of inevitable foreclosure - a loan modification. It will help you restructure your debt and avoid defaulting.

What is a loan modification?

If you can't meet your regular mortgage payments, you may request a loan modification from the bank. It basically means changes to your loan agreement such as revised terms and interest rates. Your monthly mortgage payment will become more affordable, so you can stop an approaching foreclosure. The changes may be permanent or temporary. 

There are several ways how banks can alter your loan agreement. The level of assistance will vary depending on your particular situation and the ability to meet revised terms. Typically, the lenders can:

•    Reduce your interest rate
•    Reduce your monthly payment 
•    Allow you to delay your mortgage payments for 6-12 months
•    Reduce your balance 
•    Eliminate some fees
•    Extend repayment terms

Why do banks offer loan modifications?

Loan modifications are designed for borrowers who are considering a foreclosure or bankruptcy. If you stop making your monthly mortgage payments, the bank has several options:
•    A foreclosure
•    Hire a collection agency
•    Watch you declare bankruptcy and receive little or nothing 
•    Accept the loss of money 
Of course, none of these options are attractive to the bank because they don’t want to lose money. So they offer loan modification programs to get at least some part of their money back. It is easier and cheaper to work with you than to go after you.

How can you get a loan modification?

If you want to get a loan modification, contact your bank’s customer service department and let them know about your difficult situation. Banks generally agree to modify a mortgage agreement when they see that a borrower doesn’t have an opportunity to pay back the current loan with the existing circumstances. 

Banks will request a total financial history from you, detailing your revenue and monthly costs. Just be honest and explain why you can’t make your mortgage payments. To make the process smoother, gather all information (monthly income, expenses, loan agreement, etc.) necessary to prove that you can’t make payments.

Of course, the lenders will also want to know about how you are going to pay off your mortgage and when you will get back on your feet. For example, show them that you can make a lower mortgage payment, and you are likely to get a loan modification. 

After you request, you should expect to wait from several days to several weeks before the bank will make a decision. Financial institutions have different criteria, so it is difficult to foretell whether you’ll qualify for a loan modification.