FrontDoor's Home Finance and Home Value Guide

Are you a Good Candidate for Loan Modification?

Whether an individual homeowner's mortgage will be modified is 100% subject to the lender's discretion. Currently, every lender has a different set of criteria and guidelines governing whether they will modify a mortgage, and each lender has their own process that must be followed to apply for a modification. The lack of standards and the fact that the guidelines for granting a modification are murky, at best, has created a lot of confusion among even savvy homeowners. Often, borrowers seeking to modify their mortgages grow frustrated with the process, citing:

• the unwillingness of the lender to even discuss a modification unless and until the borrower falls behind on their payments, damaging their credit;
• the many, confusing logistical hoops they are asked to jump, including repeated lender requests for the same information, and frequently unreturned calls; and
• the fact that their modification requests are denied without explanation, despite their strong interest in keeping their home and willingness to make a reduced payment.

Good candidates for modification are homeowners who (a) have a valid reason that they fell behind in the first place, like a change in their income or a change in the payment amount, and (b) can document sufficient income to make the agreed-upon post-modification payments. Lenders don't modify loans for people who can't afford to make the payments they are agreeing to. Loans with interest rates and/or payments that have adjusted or are set to adjust soon are good candidates for modification.

Unfortunately, lenders are more likely to modify loans for borrowers who are late on their mortgages (but not so late that the foreclosure auction is set for tomorrow!), and the companies most likely to grant modifications are the lenders who have gone under and been bought out. Also, loan servicing companies seem to be tougher to secure mortgage modifications from than mortgage banks.

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