We hear so much about people losing jobs and houses to foreclosure these days. Many people are losing homes because they are over extended to begin with, but others have had a temporary setback and just need a little help. Often, when there is job or income loss, it is temporary and one just needs a band aid.  This band aid is called a loan modification.

A loan modification is where the current lender modifies the mortgage payments by changing the monthly payment, extending the term, creating a new principle amount due or lowering the interest rate. This is completed internally and not through a government program.

What the borrower does is contact their current lender and explain that they will be able to make the payments in the future, but needs temporary help in making them now. Financial documents will need to be provided, showing income and assets, an appraisal will be done and the bank will run a lien search to see if there are any second mortgages or judgments attached to the home. Full disclosure must be made by the borrower in order for the lender to render a decision.  If the bank feels that the borrower will be able to get back on track and the loan is not in jeopardy of going into foreclosure, the bank will agree. Typically a modification will be allowed for 6-12 months and will then need to be revisited.

The key here is to contact the lender early, not after you fall behind several months. Even in anticipation of falling behind in the next month or so is greatly appreciated. Be prepared and honest. If you cannot get satisfaction in speaking to one person, you might need to call back and find a kinder soul. Don’t be defensive and start screaming at the person on the phone. Cooperation is important and they should cooperate with you. A decision is typically rendered within 30 days if the borrower is prepared and quick to provide all required info. Trust me it is not that bad of an ordeal and is much better than the alternative.