What Circumstances Justify a Mortgage Modification?

A loan modification can help you keep your home if you're in danger of losing it because you can't keep up the mortgage payments. The federal government has several programs to help homeowners who are struggling. Most options are designed to reduce your monthly payments to a level you can afford by working with your mortgage holder to change some or all of the terms and conditions of your loan.

Financial Hardship

Any serious financial hardship that prevents you from making mortgage payments may qualify you for a home loan modification. If your income has dropped so your monthly mortgage payments are more than 31 percent of your monthly income or if you are two or more mortgage payments behind, you might want to talk with your lender about a modification. You also might consider sending the lender a hardship letter explaining the situation.

Acceptable Reasons

Many things can justify a loan modification. Perhaps you or your spouse lost a job or were forced to take a lower-paying one. You may have been laid off temporarily. You or a spouse may have been called to military service, reducing family income. A death in the family or serious illness may have caused high medical bills. A divorce or legal separation may have caused some assets to be temporarily frozen.

"Underwater" Homes

Your home may have dropped in value below the amount you owe: an "underwater" mortgage. This happens in areas where the housing market collapsed and home values plummeted. This can justify a lender changing a mortgage to reflect the lower value rather than foreclose on a house that's worth less than the loan.

Other Adjustments

An adjustable rate mortgage may have had an increase in interest, raising your monthly payments above what you can afford. Your homeowner's insurance or real estate taxes also may have increased, changing your monthly escrow payments and adding to your total payment. You should explain how these adjustments affect your ability to pay.


Investigate your options under the federal Making Home Affordable program. This program has at least two options, the primary one called Homeowner Affordable Modification Program or HAMP. You have to be delinquent in payments or at risk of falling behind or going into foreclosure. You also have to have enough income to meet any modified payments.


Most mortgage modifications involve extending the term of the loan or lowering the interest rate to reduce monthly payments. In a few cases, the principal or amount owed may be reduced to reflect a change in value. Your mortgage has to have been taken out before Jan. 1, 2009, to qualify for a federal modification program and you must demonstrate sufficient income to meet the modified payments.

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