Discussing a Loan Modification with Your Home Mortgage Lender - dummies

Discussing a Loan Modification with Your Home Mortgage Lender

By Ralph R. Roberts, Lois Maljak, Joseph Kraynak

Lenders have many policies for rejecting a loan modification request. Some of the lender’s restrictions are reasonable. You’ll likely be rejected for a loan modification if you’re not gainfully employed. In that case, you can’t afford a house payment regardless of how much a loan modification would lower your payment.

One initial question to ask your lender is, “What is your loan modification policy?” or “What are your loan modification eligibility requirements?” If you’re ineligible for whatever reason, you want to know early on, so you can

  • Resolve any issues preventing you from qualifying. For example, you may be able to liquidate assets or shed obligations to make yourself eligible.

  • Pursue other options, such as refinancing, selling your home, or teaming up with an investor so that you can stay in your home.

  • Move up the chain of command to someone who may be willing to make an exception in your case.

You may need to clear several hurdles before reaching the ultimate decision maker. Begin with the servicer, but remember that the servicer is probably working within parameters set by the lender, investors, and any other parties that hold a stake in your mortgage. Assuming you qualify and ask for a loan modification that meets the prerequisites, the servicer can accommodate your request.

If the lender/servicer refuses to help you and you have private mortgage insurance (PMI), you may be able to enlist the assistance of your PMI company. Many if not all PMI companies have started operating home retention campaigns. They want to modify the loans so they don’t have to pay out on the PMI claims after foreclosure.

Fannie Mae, Freddie Mac, FHA, and VA also can play a role in your modification by working through their approved lenders to offer streamlined loan modifications and other forms of relief to homeowners whose mortgages they own or insure. If your mortgage is owned or insured through any of these parties, visit their Web site to look for any relief programs.

On March 4, 2009, the federal government rolled out its Making Home Affordable (MHA) program. Through this plan, participating lenders must refinance or modify qualifying loans to affordability in accordance with the program’s guidelines. For more information about this program, including whether your lender is a participant and whether you qualify for refinancing or modification, visit Making Home Affordable.