Loan modifications are defined as a change in the terms of a mortgage agreed upon by the lender and the borrower. Alterations are considered to aid homeowners in getting lower monthly payments that will deter possible foreclosure. The financial institution and the homeowner meet to determine what loan terms can be altered to the advantage of both parties. The hope is that individuals will be enabled with the ability to pay a smaller monthly payment based on their current income.

Lenders can make modifications at their own discretion, but are usually motivated by profit to offer better options to the borrower. When a financial institution has to foreclose on a property, there may be less income accrued than if they had allowed payments at a reduced rate. There are low-income states that now have federal programs available to mandate lenders into appropriate modifications. Mortgages are altered in several ways that include a reduction in interest rates, principals and late fees. The loan can also have a monthly payment cap according to a household’s income and be extended over a longer period of time. Forbearance programs are offered for those who just need a few months to get back on their feet.

There are determining factors a lender will ponder before making loan modifications. There are many factors a lender will take into consideration before making mortgage modifications. The major approval is based on the nature of hardship that has caused the financial problem. The recent economy has shown an increase in the unemployment statistics. People are losing their jobs due to company cutbacks and business bankruptcy. An accident could leave the sole income provider with unexpected medical bills or the inability to work. Other determining factors to loan modifications may be the property equity, amount owed and future financial situation.

Homeowners now have the opportunity to apply for HAMP or the Home Affordable Modification Program. Borrowers can submit an application even if they are in default, bankruptcy or foreclosure. The process is very simple and begins with a modification affirmation. The borrower then provides tax returns and proof of gross monthly income. Once the documents are collected they should be submitted to the lender for approval.

With the housing crisis upon us, banks lose money if they have to foreclose on a property that is worth less than the borrower owes. The HAMP program believes struggling property owners should be given the chance to stay in their homes.

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