Conventional 97 Loan Guide — Home.Loans

What is Mortgage Modification? — Home.Loans

Mortgage Modification Programs

If you find that you are having a hard time making your mortgage payments, do not hesitate to seek help from your lender. Many lenders have some form of an in-house mortgage adjustment program in place. Depending on the lender or program, the modifications may be temporarily put in place to help you catch up with and stabilize your monthly mortgage payments, or permanent to ensure that you will be able to pay off the loan or at least make payments until you can refinance or sell the property. 

Not too long ago, the government’s Home Affordable Modification Program (HAMP) sought to reduce monthly mortgage payments for borrowers who were facing financial hardships. However, the program (which was instituted in 2009) expired back in December of 2016. Luckily, many of the in-house mortgage modification programs still use HAMPs guidelines for helping borrowers.  

Flex Modification Program

For borrowers with mortgages under Fannie Mae or Freddie Mac, another option currently exists. Touted as a program to help prevent foreclosure, the Flex Modification Program was created in late 2017 with the goal of being a more modern take on HAMP, with more flexible borrower criteria than its predecessor. The program is meant to reduce monthly mortgage payments by up to 20%. 

Eligibility for the Flex Modification Program

In order to modify the terms of your mortgage through the Flex program, there is some important criteria that must be met first. Eligibility requirements include (but are not limited to):

  • Your home loan must be guaranteed or owned by Fannie Mae or Freddie Mac. Mortgages insured by other government agencies such as FHA Loans, VA Loans, and USDA Loans do not qualify under the program’s guidelines.

  • You must have a monthly mortgage payment that is 60 days or more past due on a primary residence, investment property, or second home.

  • The mortgage must be no less than one year old.

  • You must have a first-lien mortgage, which entitles your lender to be paid first in the event that you default on the mortgage loan.

  • Your property is allowed to be condemned or vacant and still eligible to qualify.

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How to Apply for the Flex Modification Program

If you are in need of assistance in making your mortgage payments and meet the above eligibility requirements, then applying for the Flex modification program could be the perfect solution. Applying for the program is incredibly straightforward. All you will need to do is inquire about and submit a borrower response package which is comprised of:

  • A borrower assistance form that you must fill out completely

  • A completed and signed request for an IRS individual tax return transcript

  • Proof of Income Documentation (W-2, Paystubs, etc.)

  • Proof of a cause for financial hardship such as a death, illness, loss of employment, or divorce.

Completing the required forms and providing the documentation mentioned above will get you on your way for consideration for the program.

Drawbacks of Mortgage Modification

Make no mistake, mortgage modification is sometimes the only thing standing between a homeowner in a financial crisis and foreclosure. If you are having trouble making mortgage payments, there is no question that qualifying for a mortgage adjustment and being approved could save your home. No matter what, losing your home is a worst case scenario for a lot of people, so anything that can be done to prevent that outcome should be at least considered, regardless of any drawbacks.

That being said, mortgage modification is not without its faults, like: 

Extended Loans Terms

Many modification agreements result in extensions of the loan term, sometimes up to 60 years. While that may drastically reduce mortgage payments, it could mean taking a lifetime to pay off a single debt. Making payments for that long is a hindrance to any savings you could be making towards retirement, or tuition fees for your children (if you know the joys of parenthood).

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Balloon Payments

Some modifications leave you with a balloon payment to be made after a set period of time. As you can imagine, getting stuck with a $15,000 payment after struggling to make a standard monthly payment is a literal nightmare for many people, so be sure to scrutinize every line of a mortgage modification agreement before signing. It pays to know what you are signing up for.

Changes to Your Credit Report

In terms of your financial profile, applying for a mortgage modification is almost always noted in your credit report. Granted, this is way better than foreclosure or bankruptcy, but it still does have a negative impact on your future borrowing power.

It Won’t Stop the Foreclosure Process

Most importantly, applying for a loan modification does not necessarily mean stopping the foreclosure process. Many borrowers mistakenly think that just because they are applying for a mortgage modification with their lender, that they do not have to worry about the deadlines associated with foreclosure. This is the most dangerous mistake to make for many borrowers, as they may not even be approved, and are still running out of time while actively awaiting the lender’s decision.

It may feel like a deliberately malicious thing for the lender to do, but there is actually no requirement for a lender to stop pursuing the foreclosure process even while trying to help you. In the end, they too must safeguard their best interests. This is why it is extremely important to not only stay ahead of your mortgage payments, but to seek help as soon as possible in order to prevent the worst case scenario. Waiting until the last minute is never a good idea. 

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