Many homeowners facing foreclosure find that they do not have a lot of options at their disposal. Plummeting real estate values have eaten up their hard earned equity. Even if they do have some equity, stricter lending requirements have made qualified buyers a rare commodity. Foreclosure, short sale, or deed in lieu of can be brutal on the average homeowners credit score. If you can’t or don’t want to sell your home and are unable to get a better paying job you should focus on staying put and making your home payments more affordable. Enter the world of the loan modification.

Loan Modification Defined

A loan modification is a process whereby the mortgage lender modifies the terms of the original mortgage. The negotiations are done in-house by the mortgage servicer. The end product is typically a lower interest rate, and often times, longer mortgage term in order to bring the delinquent loan current. Once the loan is current again, the modification ensures that future mortgage payments are more affordable for the borrower. The United States government has a modification program known as HAMP (Home Affordable Modification Program) which is designed to encourage lenders to attempt to modify loans in their portfolio. For each loan successfully modified the HAMP program, the lender receive stimulus money from the government. The borrower receives the benefit of a newly modified loan complete with low interest rate and escrow account, and the lender receives cash for its efforts. The promise of cash brings the lender to the negotiating table where they might not otherwise be.
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