Mortgage Loan Modification

Anthony J. VignierIf you are an anxious homeowner, worried about making mortgage payments or you are missing mortgage payments there are solutions available. The Home Affordable Modification Program, “H.A.M.P.” can help you change your loan to an amount that you can manage. A mortgage loan modification can mean the difference between keeping or losing your home. Through this program, it is possible to reduce your monthly payments by reducing the interest rate and making the mortgage current by adding any amount that is overdue to the end of the loan.

HAMP is part of a federal law created to assist homeowners modify their mortgages to prevent foreclosures and the loss of their home from foreclosure. A borrower must be either already delinquent in payments or a borrower may be current, but likely to miss a payment soon due to financial hardship. The guidelines call this “imminent risk” of default. Late payments are not a condition to begin the mortgage loan modification process. Also, the mortgage must have closed before the end of 2008, must be senior to any other loans, must be within a specific loan amount, be a one to four family home and must be occupied as the borrower’s principal residence.

When applying for a mortgage loan modification you must demonstrate to the lender that you have an existing hardship that makes it impossible for you to make your current monthly mortgage payment. The hardship must be supported with fmancial and other suitable documentation including your monthly income, expenses and assets. All documentation must be submitted for review by the lender. The lender will ask you for copies of your most recent pay stubs, tax returns and a hardship letter that explains your financial situation and problems. If based on the proofs that you submit you convince the lender that you have a hardship, the lender may agree to change the terms of your loan to make it possible for you to meet your monthly payments.

With eligibility decided, and the mortgage either delinquent or determined to be at risk of default, the lender then calculates the cost of mortgage loan modification versus foreclosure. If the benefit to the lender from modification exceeds that from foreclosure – that is if the modification would cost the lender less than foreclosure – then HAMP, by law, requires that the lender grant the modification. Otherwise, modification is optional. The lender then has to determine what monthly payment amount is affordable to you and acceptable to them. The target monthly mortgage payment must equal not less than 31% of the borrower’s monthly income.

The next step is the Trial Period. The lender offers the borrower a modified payment for a three month trial period. This period gives the lender time to verify and update the borrower’s information and to prepare the final modification agreement. The borrower must accept the trial period plan, supply requested information, and make all payments before the period ends. If the borrower meets all requirements, the modification takes effect on the first day of the month following the trial period. The lender may adjust monthly payments consistent with information received during the trial period. The modification agreement permanently changes the terms of the original loan. Once modified under HAMP, a loan may not be modified again under the program.

The loan modification process can be difficult and everyone’s situation is unique so there may be other solutions or options that tnay be more appropriate. It pays to explore all options, but if you decide to attempt a loan modification you want your application submitted correctly so that it has the greatest chance of success. Make the effort to thoroughly complete a financial statement, and to calculate the various formulas that determine your qualifications. This enables you to give accurate information to your lender. Confirm everything according to HAMP guidelines. Do not assume that your lender’s offer complies with HAMP or that bank personnel understand everything. The loan modification process can be challenging, but if handled correctly, the chances of success can be good.


Anthony J. Vignier, JD, CFP is an attorney and Certified Financial Planner in Kearny, New Jersey. He helps his clients with legal matters, asset and income protection strategies as well as investment guidance. Please call Anthony at (800) 707-5252 or send him a message through our contact form.


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