Loan Modification Basics

For struggling homeowners who are behind on their mortgage, or are having trouble making mortgage payments, there is a program that can prevent foreclosure and make a fresh start: Loan Modification. A Loan Modification is a permanent change in one or more of the terms of a mortgagor’s loan, which allows the loan to be reinstated, and results in a payment the mortgagor can afford. Simply put, if you’re a homeowner who has experienced a financial hardship, a Loan Modification is a way of resetting the clock on your mortgage to help you catch up.

Loan Modification Q & A

Bridge Street Development Corporation (BSDC) helps struggling homeowners get current on their home mortgages and save their homes from foreclosure through loan modifications. Here’s a quick list of frequently asked questions and answers about loan modifications.

Homeowner: I was laid off three months ago and money was tight for a while. I just got a new job so there will be income coming in again, but we are now two payments behind on our mortgage and I’m afraid we might lose our home. Can a loan modification help us?

BSDC: Yes, a loan modification is probably the best solution to give you a fresh start on your mortgage. If you’re behind on your mortgage because of unemployment, or expensive medical bills, or other hardships that have put a strain on your family finances, a loan modification is designed to help homeowners avoid foreclosure.

Homeowner: My new job pays less than my old job, so our household income is reduced. Could we still qualify for a loan modification?

BSDC: Yes, loan modifications are also designed to restructure your loan to make it affordable to your current household income. In fact, current mortgage guidelines require that your monthly mortgage payment (including taxes, insurance and home owner’s association dues) be less than 31% of your monthly gross (pre-tax) income. In your case, not only would you be looking at possibly deferring payments with a loan modification, but you may be making lower mortgage payments as well.

Homeowner: A loan modification would reduce my payments? How?

BSDC: The mortgage company may lower the interest rate which would lower the payment. Another option would be to stretch your mortgage payments out over 40 years instead of 30, lowering the monthly payment and giving you more time to pay. Your mortgage company may also decide to defer the part of the mortgage until a later date, also known as forbearance. Our counselors will explain your options when you meet.

Homeowner: How does the process work?

BSDC: Our housing counselors can work with you to determine your eligibility. First, you’ll need to provide information and documents pertaining to your mortgage and your household income. Then we’ll work together to complete the loan modification application and submit it to your mortgage lender for approval.

Homeowner: That sounds expensive. How much does this service cost?

BSDC: There is no fee for these services. Bridge Street Development Corporation provides this counseling as a free service to the community.