Why You Might Need a Mortgage Loan Modification

July 17, 2009 by Julio
Filed under Loan Modificiation

Many homeowners are applying for a mortgage loan modification because they are afraid that they might lose their homes. Much depends on their circumstances, but if you are in trouble with your mortgage repayments, then there are some reasons why you might need a mortgage modification to help you out.

They are not for everybody, but the Home Affordable Modification program of the Foreclosure-Prevention Program recently introduced by President Obama is designed to deal with one of the major reasons for foreclosures being made: people paying too high a percentage of their income in mortgage repayments.

Everybody has living expenses above and beyond their mortgage, and after taxes and other deductions they find very little left after paying their mortgage. They might have credit card bills to pay, medical expenses, insurances, children’s expenses not to mention clothing and food. What’s left? Often the mortgage payment comes due after the rest have had their share, and it can’t be met. That is bad planning, since if the mortgage is arranged to be taken on payday, or shortly after it, then it will be paid before these other expenses come along.

However, there are other reasons other than just too many expenses to settle, and you might have had a recent cut in wages, as many have because of the recession, or even been made jobless. You might have had a recent illness involving loss of pay and also heavy medical costs. Whatever the reason, you should consider whether or not you might need a mortgage loan modification.

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If you are working and would be able to make your payments if they were a bit lower, then the foreclosure prevention program might well apply to you. There is another section in it that relates to mortgage refinancing, but that is only available to those that are up with their payments, even though they are still having financial problems. Had you kept paying your mortgage rather than your credit cards, for example, refinancing might have been a possibility.

To qualify you have to be paying more than 31% of your gross income – that is your income before taxes and other deductions are paid from it. If you are paying less than that, then you will have to find some other way. However, if that applies, and you bought your home before 2009, then you are eligible as long as you owe less than $729,750 on it, and it is your main domicile.

If your application is successful, the lender will have to find a way of reducing your payments to 38%, and then the government will give them the other 7% so that your monthly repayment is only 31% of your gross monthly wages or salary. To achieve that, your lender might offer you an extended terms over which to pay, or reduce your interest rate, and they have other ways open to them, but the net result, however it is achieved, is that you will be paying 31% of your gross income, and no more.

If that would help you, then a mortgage loan modification would certainly help you. However, there are certain procedures to follow, and you have to prove or state gross penury – meaning that you are in severe financial hardship! The lenders will not just believe your word, and you will have to provide evidence to back up everything say, particularly with regard to your adverse financial situation.

These people are experts at finding the truth about your financial position, so there is no point in making false claims. Tell the truth, and provide documentation to support what you say. Acceptable documentation includes bank documents, credit card records, mortgage payment records, wage slips and tax returns. All of these can be used to support your claim.

In order that you can adequately complete the required forms properly, and know what documents are needed, and also how to word your letter explaining why you need this modification and the circumstances leading to it (get that wrong and you are out), it is best to get professional help from a mortgage financial advisor.

Such a person can help you through the process, or even do it themselves for a fee. Alternatively, there is advice online, including information packs that help you through the process, and provide examples of documents and forms, and details on how to negotiate with your lender. These can help you a great deal at low cost, and practically ensure that you follow the procedure and provide your mortgage lender with exactly what they are looking for.

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