Mortgage Modification—And Why You Should Care
Two years ago, in an effort to save homeowners from foreclosure, the Obama Administration came up with the Making Home Affordable program. The idea was to offer homeowners who were struggling with their mortgages a chance to modify them (in other words, to get better loan terms) so that they wouldn’t slip into foreclosure.
The program, which had been meant to help millions, did not. It did, however, help hundreds of thousands, and many of them have seen their mortgage payments cut by 25%, 30%, even 40%.
Real estate data provider LPS Applied Analytics notes that 23%—nearly a quarter—of loans that were more than 90 days delinquent a year ago are actually on-time today.
What You Need to Know to Get a Good Mortgage Modification
1. The Home Must Be Your Primary Residence
So, if you’re lucky enough to have a vacation cabin, you can’t modify the mortgage on it.
2. Job Loss or Medical Problems Are Strong Reasons for a Modification
The bank is looking to see if you are financially responsible, and just had a change in circumstances. If you show a pattern of spending beyond your means—stop now!—realize it will be tougher to get a modification.
3. Your Bank Might Consider Household Income When Deciding
They want to make sure you can pay the mortgage under the new terms, so they might look at your income plus your partner’s income.
4. Do Your Paperwork … and Photocopy It
The bank might want to see pay stubs, tax returns and bank statements. Many people who have applied for modifications have complained that their files get lost, so keep a copy of everything that you hand in.
5. Make Your Trial Payments
Mortgage writer Gina Pogol notes that one-quarter of homeowners don’t make timely payments in their initial, three-month trial periods. But you want the bank to trust you, so pay on time if you’re trying for a permanent modification.