How to Apply for a Mortgage Modification

If you find yourself in financial straits, upside down in your mortgage or unable to meet monthly payments, you need to seek a mortgage modification.

Find out if you qualify for Making Home Affordable

In early 2009, the Obama administration put into effect a new loan modification program titled Making Home Affordable. It is designed to assist homeowners who find themselves in financial straits. To qualify, your loan must have been made before January 1, 2009. The mortgage must not be over $729,750, and it must be either owned or guaranteed by Fannie Mae or Freddie Mac. Most of the money banks and mortgage companies use for home loans is provided through one of these entities.

The goal is to lower your monthly payments to under 31% of your monthly income. The program got off to a slow start initially but now offers new incentives to lenders for participating. The first step is to find out whether your loan qualifies. You can call the lender to whom you send your monthly check to find out if your loan is covered by Fannie Mae or Freddie Mac. Or call:

Fannie Mae at 1-800-7FANNIE between 8AM and 8PM EST or go to

Freddie Mac at 1-800-FREDDIE between 8AM and 8PM EST or go to

Compose a letter that clearly states why you are in financial straits

Contact one of the HUD approved Foreclosure Avoidance Counselors in your area. They can advise you on how to proceed, and also inform you about any federal, state or local assistance for which you may qualify. These services are provided free of charge by nonprofit housing counseling agencies working with the federal government. Find one in your area by going to

Get together your bills and also documentation of illness or unemployment, plus your efforts to remedy the situation. You need to write a letter that states why you require assistance at this time. This should be typed or printed on plain white paper, and you should keep a copy for your files.

You need your pay stubs for the last 4 months; income tax returns and W2’s for 3 years; all correspondence from the lender or loan servicer, including envelopes; copies of your drivers license and social security cards; closing statements; loan documents; and all recurring bills. Include all evidence of employment issues or health problems that have contributed to your falling behind.

Get your local realtor to do a no-cost Competitive Market Analysis. This will give you a rough estimate of the market value of your home. The HUD counselor can advise you about the best way to approach your lender, as long as you supply the appropriate documents.

Your best chance of getting a mortgage modification is to prove that you will be able to pay the new mortgage. You need to know what income you can expect and what bills you will be paying besides the mortgage. Know what fees you owe, and whether the lender will reduce, eliminate or tack them on to the new mortgage for repayment.

Then call your lender’s customer service number and explain that you need to renegotiate your loan because you have fallen behind on payments. If the customer service reps tell you there is no such department, as for the workout department, mortgage modification department or reinstatement department.

When you reach the correct department, tell the representative that you want to modify your mortgage. The rep should work with you either under the Making Home Affordable program or under the company’s own program.

Keep a record of who you talk to and when. This is very important in proving that you have made efforts to come to an agreement with the lender, in the event that they begin foreclosure proceedings. In some states, that can happen very quickly.

Possible outcomes

If the lender doesn’t think you make enough money to afford a modified mortgage, they may only offer you a way to catch up on the existing loan. This may even increase your payments. Three possibilities exist:

Forbearance will allow you to make reduced payments for a few months with the understanding that you will catch up your payments at a later date.

Reinstatement lets you catch up all payments in arrears and resume your usual monthly payment.

Revised repayment plans add payments in arrears to existing monthly payments, with interest.

If the lender refuses to modify the mortgage, ask the lender to “produce the note.” This is a stalling tactic but may encourage them to negotiate with you.

If you cannot get your loan modified, ask for a short sale. The Obama plan offers incentives to lenders to accept short sales. This means that you sell your home for less than what is owed on the mortgage. Another, less widely used option, is for the lender to accept the deed in lieu of payment.

If you get approval for a short sale, make sure the agreement states that the sale price will be payment in full, without pursuit of any deficiency judgment. Without this wording, the lender can seek a judgment against you in the amount of the mortgage not covered by the sale price.

In a short sale you lose your home but your credit rating only drops 50-100 points. In 18 months you may be able to qualify to buy a new home.

If, on the other hand, you go into foreclosure, you will be liable for any amount of the mortgage over the sale price of the house. Your credit rating will drop 200-400 points, and this will stay on your credit report for 7-10 years. You will be required to wait 36-60 months before seeking a new mortgage.

Mortgage modification allows you to keep your home and pay reduced monthly payments. The services provided under this program are free of charge.

Many scams have sprouted up to trap unsuspecting home owners. Never pay anyone for advice about the Making Home Affordable program. Don’t let anyone talk you into sending your mortgage payments to them instead of your lender, or turning over your deed because they tell you that they can “save” your home.

Seeking a mortgage modification is a good step if you find yourself in financial straits due to unemployment or illness. You may be able to stay in your home and reduce your payments to a level you can afford.

If negotiations with your lender fail, be prepared to file for Chapter 13 bankruptcy, which will allow you to maintain your residence and certain other property, such as the car you use to get to and from your work place.

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