Question:

What are mortgage modification programs and how do they work?

Answer:

A mortgage modification program also referred to as a loan workout is when a lender of a mortgage agrees to change the terms of the agreement in order for the borrower to be able to afford the monthly payments and avoid foreclosure. 

Working of Mortgage Modification Programs:

A mortgage modification can only occur when both borrower and lender mutually agree to work out new and better loan terms. It aims to create a win-win situation by allowing borrowers to stay in the home, and lenders to avoid a foreclosure on their books.

In a mortgage modification, generally, the interest rate is dropped temporarily or the payback period is extended, so that the monthly payments become lesser and more affordable than they originally were.

Principal reductions rarely happen in a mortgage modification program. In the current housing market, home values have gone down considerably. So, if a borrower is just looking to knock a few thousand dollars off the principal, that's probably not going to happen. For those kinds of borrowers, refinancing is a better option.

To determine whether a borrower generally deserves a mortgage modification, lenders usually look at the following:

  • The cost of a foreclosure vs. the cost of a modification
  • Nature of problems making the mortgage unserviceable
  • Amount Owed
  • Equity in the property
  • Predicted future financial situation

In short, the borrower must have the ability to pay and some income coming in. If not, then most lenders will either pursue a foreclosure or a short sale.

Government Mortgage Modification Program:

With the decline in the housing sector, the government has stepped in to help homeowners meet their mortgage payments. The government has introduced a mortgage modification plan for borrowers who are falling behind on their payments. To implement this plan, cash incentives are being given to lenders so that they may relax the conditions for mortgage modification and homeowners who have suffered economic losses may be able to stay in their homes.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
Was this Mortgage QnA helpful?
Not at all
  • Currently 3/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
Definitely
Add to this Answer

Mortgage QnA is not a common forum. We have special rules:

  • Post no questions here. To ask a question, click the Ask a Question link
  • We will not publish answers that include any form of advertising
  • Add your answer only if it will contrubute to the quality of this Mortgage QnA and help future readers
If you have trouble reading the code, click on the code itself to generate a new random code. Verification Code Above:
Bookmark and share this QnA: