Mortgage Loan Modifications

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A loan modification is a process granted by mortgage lenders that results in lowered monthly mortgage payments for eligible homeowners and may help prevent foreclosure. Many homeowners who originally qualified for their mortgages later find themselves unable to pay their mortgage payments. The reasons can vary, but generally involve a financial hardship, such as:

  • Reduction or loss of income due to job loss or decreased work hours
  • Reduction or elimination of spousal/child support
  • Illness/injury resulting in medical bills – self or family member(s)
  • Ballooning payments associated with some types of mortgage (such as Adjustable Rate Mortgages) resulting in new, higher payments at set intervals

Who is eligible for a loan modification?

While every mortgage lender has their own policies and processes for modifying mortgages, they all follow this general procedure: The homeowner contacts the lender to ask if he or she is eligible for a loan modification. To determine this, the lender directs the homeowner to provide the circumstances and need for the modification, along with documentation. Once the homeowner submits all the required information, the lender reviews it to determine eligibility. If deemed eligible, the homeowner may be offered a new, lower monthly mortgage payment. These new lower payments may be temporary or permanent, and the lowered payments may also require the length of the loan period to be extended.

How to begin the loan modification process

Whether or not a homeowner qualifies for a loan modification depends on a variety of factors, generally dictated by the mortgage lender. If you are seeking a loan modification, your first step should be contacting your lender directly to see if a loan modification is an option for you. If it is, your lender can instruct you on how the process works and what you need to do to initiate the process. The loan modification process begins with the homeowner gathering the necessary paperwork as directed by the lender (such as tax returns, proof of income, reason for hardship documentation, and other related items.)

After the lender has reviewed this information, they contact the homeowner to either offer them a modified loan payment and the details associated with the payment reduction, or to inform the homeowner the reason(s) why he or she is not eligible for a loan modification.

To learn more about how the loan modification process works and find out if you are eligible, call InCharge Debt Solutions at the number above to speak with a HUD-certified housing counselor about foreclosure prevention through loan modification.

Be Careful About Loan Modification Scams

Because loan modifications are becoming more common, many scam artists are taking advantage of their popularity to con homeowner into costly schemes and programs that promise loan modification benefits for high fees. If you are a homeowner seeking a loan modification, your best option is to deal directly with your lender or a HUD-approved agency, such as InCharge Debt Solutions. Only lenders can grant loan modifications, so seeking the help of any additional party is unnecessary – and potentially expensive.

Unfortunately, many homeowners don’t realize that dealing directly with their lenders is the safe path to loan modifications. Some are lured in by radio and television ads with messages proclaiming “We’ll negotiate lower mortgage payments for you!” or roadside signs promising “Guaranteed loan modifications.” While these claims sound promising, they are false.

A not-for-profit third party can negotiate lower payments or guarantee loan modification. Mortgage lenders are the gatekeepers of all loan modifications and the borrower must work through them. The only exceptions are nonprofit agencies such as InCharge Debt Solutions, a consumer organization offering HUD-approved housing counseling. They work with lenders to determine loan modification eligibility, but the homeowner seeking the modification must play an active role and remain in contact with their lender throughout the entire process.

What types of Loan Modification Scams are there?

Fee-Based Payment Reduction: The scam artist tells you his company can negotiate a deal with your lender to lower your payments for a fee. You are generally told not to contact your lender, lawyer, or a credit counselor, and to instead let the scam artist handle all the details. Once you pay the fee, the scam artist disappears with your money. Sometimes, the scam artist requires that you make all mortgage payments directly to his company while they negotiates with your lender. In this instance, the scammer may collect a few months of payments before disappearing.

Bait-and-Switch Documents: These highly unscrupulous scam artists deliberately confuse homeowners via documentation. You think you’re signing documents for a new loan to make your existing mortgage current. But it’s really a scam: What you’ve actually signed are documents that surrender the title of your house to the scam artist in exchange for a “rescue” loan.

Rent-to-Buy Scheme: These con artists ask you to surrender the title of your home as part of a deal that allows you to remain in your home as a renter, and to buy it back during the next few years. You may be told that surrendering the title will result in a better credit rating, which can help you to secure new financing to prevent the loss of the home. But the terms of these deals are generally extremely onerous and make buying back your home virtually impossible. You lose the home, and the scam artist walks off with all or most of your home’s equity. Worse yet, when the new borrower defaults on the loan, you’re evicted.

In a variation, the scam artist raises the rent over time to the point that the former homeowner can’t afford it. After missing several rent payments, the renter – the former homeowner – is evicted, leaving the “rescuer” free to sell the house.

Don’t let scam artists take advantage of you. Get the facts from a nonprofit housing counseling organization approved by the US Department of Housing and Urban Development (HUD), such as InCharge Debt Solutions. Our certified housing counselors will evaluate your financial situation and find options and resources to help you keep your home.

About The Author

George Morris

In his 40-plus-year newspaper career, George Morris has written about just about everything -- Super Bowls, evangelists, World War II veterans and ordinary people with extraordinary tales. His work has received multiple honors from the Society of Professional Journalists, the Louisiana-Mississippi Associated Press and the Louisiana Press Association. He avoids debt when he can and pays it off quickly when he can't, and he's only too happy to suggest how you might do the same.