A modification happens when a term on an existing loan is permanently changed by the lender, resulting in the loan getting reinstated. This also means the monthly payments are reduced to an amount the borrower can afford to avoid default.
Government Modification Programs
The Department of Housing and Urban Development (HUD) and the US government currently offer several loan modification programs for an individual’s primary residence. These include the Loss Mitigation Mediation (LMM) Program, the IndyMAC plan, the Fannie Mae/Freddie Mac plan, and Hope for Homeowners Plan.
The most recent is the Home Affordable Modification Program which was introduced by the Obama Administration as part of the Making Home Affordable Plan. Typically, it involves lower loan principals, reduced interest rates, and extended loan duration.
Qualifications to avail of the program include:
- Verified financial hardship affecting the borrower’s ability to make regular loan payments
- A mortgage that originates on or before the 1st of January 2009
- No convictions of tax evasion, forgery, money laundering, fraud, theft, or felony larceny relating to real estate transactions within the last 10 years
For borrowers who do not qualify for government programs, they can turn to several banks who offer their own loan modification programs with their own unique set of requirements.