• Reduce interest rate
  
• Reduce principal balance
  
• Change loan terms (example: from an adjustable to a fixed rate; extension of mortgage term to 40 years, etc.)
  
• Or all of the above
  

A mortgage modification can be requested when the homeowner faces an income reduction or there is an increase in lending interest rate (adjustable rate). It is a situation where mortgage payments are becoming out of reach. It is primarily for those who can almost make their payments each month, but not quite.

Many homeowners are facing financial hardships such as unemployment, forced relocation, medical bills or divorce. These conditions may not qualify for a mortgage modification. However, there are alternatives. It is important to explore all the options, and an educated real estate agent can help.

Loan Workout is the first step in mortgage modification. It is imperative for people experiencing difficulty in paying their mortgage to contact the lender or a counselor and try to work out a solution. Loan workout is helpful if the homeowner needs a little time to get back on track. This is a temporary solution and the lender allows to repay past due amount in monthly installments supported by suspension or reduction of current payments.

Qualifying for mortgage modification. The following information is required for the lender to consider a modification:

• Information about first mortgage, such as monthly mortgage statement
  
• Information about any second mortgage or home equity line of credit (HELOC) on the house
  
• Account balances and minimum monthly payments due on all of the credit cards
  
• Account balances and monthly payments on all other debts, such as student loans and car loans, et al.
  
• Borrower’s most recent income tax return
  
• Information about savings and other assets
  
• Information about the monthly gross (before tax) household income, including recent pay stubs or Business Profit & Loss Account, year to date if self employed.
  
• Documentation of income received from other sources, if any
  
• A letter describing the circumstances that caused the income to be reduced or expenses to be increased or a hardship letter, if applicable.
  

What if you don’t qualify. Don’t worry! There are many options available for homeowners facing financial challenges. While the goal is to keep the home, if possible, one solution for many could be going in for a short sale. A positive, dignified solution, short sale has many benefits over foreclosure, including a lesser impact on credit scores and future eligibility for a loan.

Selling the home may actually be challenging especially when two or more lenders are involved, and, worse if they are different entities. It takes unpredictable time to get the approval and in most cases chances are that the 2nd or 3rd lender can make or break the deal. The buyer loses patience and backs out of the transaction. Any experienced real estate agent can help in properly negotiating with lenders on behalf of the borrower.

Who to Contact

A real estate agent educated in foreclosure alternatives can help develop a strategy that best suits the a homeowner’s specific needs. The agent can also help in getting in touch with the appropriate lender to discuss a possible modification.

If Fannie Mae or Freddie Mac owns the mortgage, the homeowner could be eligible for a Home Affordable Refinance. This will allow refinancing the home and often lower payments.
(www.InteroShortSale.com contains valuable resources that are informative and helpful)

Avoid Fraud

When considering a mortgage modification, beware of companies advertising their ability to negotiate in lowering the payments, and possibly the mortgage balance for a commission or up-front fee. According to the Federal Trade Commission, “People facing foreclosure should avoid any company or individual that requires a fee in advance, guarantees to stop a foreclosure or modify a loan, or advises the homeowner to stop paying the mortgage company.”

The First Steps

Taking back the control of financial future! The first steps are easy: understand the financial situation, learn about all the options, and contact an educated and experienced real estate person to formulate a plan.

Make financial stability your resolution for the new year!