A mortgage modification is distinct from a loan refinance. Under refinancing, you transition from your original loan to a new mortgage, generally with a lower interest rate or better all-around terms. With a modification, your lender alters the terms of your current loan to provide a more manageable monthly payment. The government’s Home Affordable Modification Program (HAMP) is the primary tool used by lenders to help stem the tide of mortgage foreclosures.
Minimum Eligibility Criteria
If you request a mortgage modification from your lender under Making Home Affordable, the first thing it will do is see whether you meet baseline criteria for the program. You must own and occupy a one- to four-unit property to be eligible for HAMP. The unpaid principal balance on the property cannot exceed $729,750 for a one-unit dwelling, $934,200 for a two-unit property, $1,129,250 for three units and $1,403,400 for a four-unit building. You must have taken out the first mortgage on your property on or before Jan. 1, 2009.
Inability to Pay Current Mortgage Payment
You will not qualify for HAMP unless your mortgage payment, including interest, taxes and insurance, exceeds 31 percent of your monthly pretax income, according to the Making Home Affordable website. You must document financial hardship, such as unemployment, that prevents you from making this payment. HAMP literature notes that your lender will require you to verify your income and expenses before approving you for a modification. Initial approval, which leads to a three-month trial modification, can be based on verbal verification. However, before a lender issues a permanent modification, you must provide written documentation and make three consecutive payments under the trial.
Current Loan Payment Status
You can be current or past due on your current mortgage when applying for a HAMP modification. In fact, the Making Home Affordable website points out that borrowers who think they will default soon should contact their lender about HAMP. If a lender participates in HAMP, it must refer homeowners facing foreclosure for HAMP eligibility before proceeding with the foreclosure sale. While servicers of Freddie Mac and Fannie Mae loans must take part in HAMP, the federal government encourages other lenders, such as banks and credit unions, to participate.