The outcome of a loan modification request is hard to predict, and some lenders don’t even participate in any of the federal government's programs for homeowners. However, a successful application could reduce your mortgage payment to as little as 31 percent of your current income, according to the Internal Revenue Service. Getting your mortgage modified could be the difference between staying up nights worrying about becoming homeless and getting more sleep.
Your first step is to find out if your mortgage company participates in modification programs sponsored by the federal government or special programs for hardest hit states. The U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development are the main contact points for mortgage modification agreements with the largest U.S. mortgage lenders. Each lender that participates in the federal Making Home Affordable program receives financial incentives in return for helping its customers stay in their homes. These lenders also follow uniform guidelines set by the federal government.
Your mortgage modification request requires full disclosure of your income from all sources. Your bank will require that you provide records of any assets such as retirement accounts, stocks, and income from trusts or annuities. After listing these assets, you must send annual or quarterly statements that support the value of all assets. Hiding assets is a criminal offense. The majority of applicants also send W-2 forms or recent pay stubs as proof of income from employment. Self-employed applicants need to submit profit and loss statements. Your lender also has the right to review your bank statements and tax returns.
As part of your mortgage modification application, you must prepare a detailed monthly budget and discuss it with a representative from your mortgage company. This budget details how you spend your income. It covers all housing, utilities, food, clothing, transportation and entertainment or discretionary expenditures. You submit a signed form of estimated monthly expenses with your income statement as part of your modification application.
Your hardship letter to your mortgage company is a critical part of your modification request. This written personal statement provides a detailed picture about your life and the events that caused the financial crisis that is keeping you from making the payments required on your mortgage contract. Temporary or permanent income reductions due to illness or unemployment are hardships that might make you eligible for a modification. Family changes that affect your household income such as divorce or death of one of the mortgage signers are also circumstances that you should discuss in your hardship letter.
Every mortgage lender has a different process for evaluating your modification application. While some assign a personal counselor who guides you through the steps and documents, others use email or online account updates. After you send every document that you need to support your modification request, you get a written approval or denial letter from your mortgage holder. The package you receive will list all the factors your mortgage company used for its decision. If your lender approved your request, you also get a statement of the terms of your initial or trial modification, including the new monthly payment amount. If don’t get approved, your lender provides dispute procedures, other foreclosures prevention alternatives or mortgage workout programs that are available from the government or the lender.
Carol Luther has more than 25 years of business, technology, and freelance writing experience. She has held leadership roles in higher education management, international development, adult education, vocational education, and small business support programs