There are many reasons why you may suddenly find yourself unable to afford your mortgage payments. The loss of a job, a reduction in income, unexpected extraordinary expenses, or incapacity due to illness or injury can all cause huge financial strain. The major hazard of missing mortgage payments is the threat of foreclosure. However, working with your lender to modify your mortgage can help alleviate financial pressure and get you back on track. Read on to learn about mortgage modification and how it can help you avoid foreclosure.
What Is Mortgage Modification?
Mortgage modification is the process by which you and your lender agree to change one or more of the terms of your mortgage contract to make your payments more manageable. Mortgage modification as a type of "loss mitigation," the process by which lenders help homeowners avoid foreclosure.
There are many ways to modify your mortgage, including:
- Lowering the interest rate of the loan
- Extending the term of the loan
- Reducing the amount of principal paid in each payment
- Temporarily suspending or reducing loan payments (known as loan forbearance)
- Adding missed payments to the loan balance
Some lenders may also require a "trial period," frequently around three months long, during which the homeowner demonstrates the ability to make the modified loan payments before the modification is finalized.
How Do I Modify my Mortgage?
Mortgage modification sounds like a magical solution, but it requires some legwork on the homeowner's part. The mortgage modification process is essentially a negotiation with your lender, so it will take perseverance and patience.
The modification process starts with you contacting your mortgage lender, discussing the problem, and proposing a solution. The end-goal will be to reach an agreement of new terms resulting in an affordable monthly mortgage payment. An "affordable" mortgage payment is typically defined as 31% of your gross monthly income.
Before agreeing to modify your loan, your lender will require you to demonstrate financial hardship. You will need to provide a variety of different documents, including financial statements, tax returns, paystubs and other proof of income, bank statements, and a loan modification hardship letter. When assembling and submitting these documents, be vigilant and accurate. Confirm that your submission is complete and includes all requested statements. If your submission is incomplete, you risk your modification request dropping to the bottom of the pile.
Throughout the modification process, constant communication with your lender will be key. Ask questions, clarify, and stay in touch with your lender. Be persistent and follow up. This will take some effort on your part, and you may feel frustrated. However, remember the significant payoff from your efforts: financial stability and preventing a foreclosure.
Alternatively, consider taking advantage of free help offered from government agencies. The U.S. Department of Housing and Urban Development (HUD) sponsors housing counseling agencies throughout the country that offer free or low-cost assistance. Housing counselors are experienced in communicating with and negotiating lenders, and can help you navigate the loan modification process. You can search for HUD-approved counseling agencies in your state.
Beware of Mortgage Modification Scams
Unfortunately, there are a growing number of mortgage modification scams that target homeowners in crisis. A good rule of thumb is if an option seems too good to be true, it probably is. Some of the warning signs of mortgage modification scams are:
- Mortgage "counselors" who demand large up-front payments before doing any work
- Offers to pay your mortgage if you sign over the title of your home
- Anyone who discourages you from communicating with your lender
- Those who claim to know "secret laws" or have "secret information" that can solve your problem
- High pressure sales tactics that feed on your fears
Sadly, there are those who prey on the vulnerable, including desperate homeowners. Recognizing the warning signs will help you avoid falling victim to a scam.
Get Legal Help with Mortgage Modifications
If you are considering mortgage modification, it may be helpful for you to seek legal help. Speaking with an experienced foreclosure lawyer can help you understand the process and evaluate the solutions available to you.