Loan Modification FAQs

What is a loan modification/loan mod?

A loan modification is a process through which your lender changes any or all of the following:

• Your interest rate
• Your principal balance (through a reduction)
• Your loan terms (example: from an adjustable to a fixed rate)
• Any combination of the above

This process can allow borrowers to stay in their property when they can no longer afford their current mortgage payments. You must qualify with your lender. NOTE: A principal reduction was extremely rare in a loan modification. However, the Mortgage Settlement that was granted in early 2012 is likely to change that for some homeowners that fit the criteria.

How does the Mortgage Foreclosure Settlement that happened on 2/9/12 work?

If your loan is with Wells Fargo, Bank of America, JP Morgan Chase, Citigroup or Ally Financial/GMAC, you may be part of the settlement. Your servicer/lender will contact you if you are part of the settlement though you can also contact them with questions. NOTE: If the investor on your loan is Freddie Mac, Fannie Mae, FHA, or VA, you are not part of this settlement. For additional details, visit http://www.nationalmortgagesettlement.com

Why would a lender modify my mortgage?

Lenders have realized that in some cases it is better for them to work with current borrowers to lower payments or possibly improve terms in order to keep homeowners in their properties. The average foreclosure can cost a lender from 35-50% of the value of a property, so keeping borrowers in their homes making a monthly mortgage payment can be a good option for everyone.

What do I need to qualify for a loan modification?

You must demonstrate that if the lender modifies your loan, you can afford the payments for the life of the loan. According to the Making Home Affordable Web site, you will need the following information in order for your lender to consider a modification:

• Information about your first mortgage, such as your monthly mortgage statement
• Information about any second mortgage or home equity line of credit on the house
• Account balances and minimum monthly payments due on all of your credit cards
• Account balances and monthly payments on all your other debts such as student loans and car loans
• Your most recent income tax return
• Information about your savings and other assets
• Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources

If applicable, it may also be helpful to have a letter describing any circumstances that caused your income to reduce or expenses to increase (job loss, divorce, illness, etc.) NOTE: This letter is different from the “hardship letter” you would write for a short sale. In the loan modification “hardship letter” you are telling the lender why you can afford to make the payment IF they modify your loan.

How do I qualify for a loan modification?

To begin, the first call you make should be to your lender. You can find their information on your most recent mortgage statement. You should have the information from the previous question ready to discuss with them. Tell the receptionist you want to apply for a loan modification. They will likely transfer you to their loss mitigation department, though banks use different names for this division. Some common names for this department are:

• Loss Mitigation
• Mortgage Modification
• H.O.P.E.

Prior to contacting your lender you can quickly complete an eligibility test at MakingHomeAffordable. This test will let you know if you are eligible for a modification through the government-sponsored Home Affordability and Stability Program (HASP). For a list of mortgage lenders and servicers, visit www.HopeNow.com.

What is HAMP?

The Home Affordable Modification Program, also known as HAMP, is a federal program of the United States set up to help eligible home owners with loan modification on their home mortgage debt. It is part of the Making Home Affordable Program which was created by the Financial Stability Act of 2009. The program is collaboration with lenders, investors, securities, mortgage servicers, the FHA, The VA, FHLMC, FNMA and the Federal Housing Finance Agency to create standard loan modification guidelines for lenders. HAMP is a voluntary program and lenders do NOT have to participate in it.

How long does it take to get loan modification?

The process can last several months. Sadly, less than 10% of the loan modifications that are applied for are approved. Sometimes a modification can actually increase your payments or offer some terms that the homeowner is unwilling to agree to. This is one of the many reasons for the high failure rate of loan modifications.

Am I protected from foreclosure while I wait for my loan modification?

No. If you are delinquent with your mortgage payments, most lenders will simultaneously proceed with foreclosure. They want to be sure that if the loan modification does not work out, they call get the home back through foreclosure as quickly as possible. Many homeowners found that while they waited for the approval of their loan modification, the home was foreclosed on. There is legislation in process to stop this “dual tracking” but it has not yet been approved as of this writing.

Once you receive the loan modification approval in writing from the lender, foreclosure proceedings should stop. You should confirm that you are no longer in the foreclosure process by checking the public records or consult with your trusted real estate professional.

NOTE: When you have a foreclosure sale date that is 60 days or less away and you do not have a written approval from your lender to modify the loan, you may want to consider a short sale (FAQ’s) as a way to avoid having a foreclosure on your record. Life after a foreclosure is much worse than life after a short sale for many reasons. We are happy to review the reasons why with you.

What if I don’t qualify for a mortgage modification, can’t afford my home, and owe more than it’s worth?

You are not alone and foreclosure is not the only option. If your mortgage lender or servicer will not work with you to reduce your payment, you may want to consider the short sale process. Agents like me, with the Certified Distressed Property Expert Designation, have undergone extensive training in how to process and negotiate short sales successfully. A short sale allows you to sell your home for less than what you owe and avoid foreclosure and typically costs you $0. Contact our office today to schedule a 30 minute Phone Consultation.

What is a Home Affordable Refinance Program (HARP)?

The HARP Refinance Program has been extended until 12/31/12. If Fannie Mae or Freddie Mac owns your mortgage, you may be eligible for a Home Affordable Refinance (HARP). This program will allow you to refinance your home and often lower your payments. These are both GSA’s and you may have one of their loans and not know it. Visit freddiemac.com/corporate/ or fanniemae.com/loanlookup/ to find out if either of them owns your loan. This is great solution homeowners who are current on their payments but have a high interest rate loan they want to have reduced.

What are the qualifications for a Home Affordable Refinance (HARP)?

• A one to four unit home;
• The loan on your property is owned or securitized by Fannie Mae or Freddie Mac (see Useful Links above);
• At the time you apply, you are current on your mortgage payments with no late pays in the last 12 months;
• There is no LTV cap on fixed rate mortgages. An adjustable rate mortgage has a cap of 105% LTV;
• You have income sufficient to support the new mortgage payments, and the refinance improves the long-term affordability or stability of your home loan.
• Visit www.harpprogram.org/faq.php for additional information about this program.

How is HARP 2.0 different from HARP?

The main difference is that there is no loan to value cap of 125% for some loan types. Though HARP 2.0 started several months ago, lenders are to get full details about what is and is not allow in March 2012. Speak with a lender you trust to find out additional details.

What if I don’t have a loan insured by Freddie Mac or Fannie Mae?

The Obama Plan is a proposal that President Obama made in a speech in January 2012 that may help borrowers with non government insured loans. It would need to pass through Congress to be enacted. If it does pass through Congress, homeowner’s would save “an average of $3,000 per year” if they meet the requirements according to the President’s speech. It would apply to a primary residence only. There would be no appraisal or tax returns required as it is written today. The cost is estimated at $5 – $10 billion dollars.


When a loan modification or refinance does not work for you for whatever reason, you may want to consider doing a short sale on your home. Because of “dual tracking” if a Notice of Default has been filed against you and you have an estimated sale date less than 60 days away, call me. You do not want to risk waiting too long to avoid foreclosure. Remember, less than 10% of loan mods historically have been enacted which means a 90% failure rate. Read Short Sales FAQs for additional information about what to expect when you do a short sale.

Please contact us or call 916-939-2040


Smith Real Estate Services, Inc.is a real estate brokerage company in California (DRE 01381095 and 00676207). We do our best to provide you with current and accurate information. However, we are not attorneys or accountants. Please consult with your attorney or CPA for further information and how this information may affect you personally. Visit our Resources for a list of professionals who specialize in helping distressed homeowners. This was written in October 2011.