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Mortgage modification is the changing of a loan; the terms of a mortgage are modified outside of the original terms of the agreement between the borrower and lender.  Homeowners that simply cannot afford their mortgage payments can try to improve their deal with their lender.  The process is incredibly complicated with concessions offered usually only to borrowers who earn very little or a significant amount in relation to the lender’s guidelines.  The general rule of thumb from the banks is that if borrowers can afford to pay, they should be held accountable so they can pay back the loan over the length of the term.

Affordability of payments is generally defined as a specific percentage of the borrower’s monthly gross income.  A common figure is roughly thirty-eight percent, and the number varies between thirty-one and forty-one percent.  The term is sometimes extended to up to forty years with a deference of principal until the loan is refinanced or the house is sold; this is done because the modified payment must be sufficient to pay off the loan.  Many lenders in addition want proof that the borrower is under incredibly difficult financial strain and stress, such as illness, disability, unemployment, divorce, or even the death of a spouse.  Borrowers may have to write a hardship letter explaining their situation.

Loan modifications strive to achieve two goals: the first is to create a payment affordable for the borrower and the second collect as much money from the original loan for the lender.  The various types of modifications tend to vary from one lender to the next.  Some of the options are a temporary interest rate reduction, an extended payback period, and even deferral of principal.

Many homeowners may be interested in having their lender to write off part of the mortgage if the home has declined in value.  This type of modification is known as a principal reduction.  It is offered very rarely, because lenders are not in the business of absolving debts that are owed to them.  Also, lenders may be restricted by contractual obligations to investors owning mortgage-backed securities.  They probably don’t want to encourage large numbers of borrowers to demand loan modification because they owe more than their home is worth.

The best way to begin the loan modification process is to call or text the number of your monthly mortgage statement.  Various lenders will accept requests through e-mail or online, but the telephone is generally preferred.  When making that call or text, be prepared to discuss your current financial situation, including your income, any debt, household expenditures, etc.  You will probably have to explain any financial hardship that you have recently experienced.  Present copies of your recent paycheck stubs and bank statements.  The lender is primarily concerned with the ability of a borrower to make mortgage payments if certain concessions are made to you.  Being honest about your financial situation is incredibly important; do not give false information to the bank about your income or assets.

Some borrowers will receive a modification subject to verification of income by the end of the first conversation with the lender.  Others may have to wait longer for other information to be verified or may be denied.  How long the process takes depends upon several factors including, 1) how busy your lender’s loss mitigation department is, 2) how quickly you submit documentation, and 3) whether your situation meets the lender’s guidelines for a streamlined process.

If you are facing foreclosure or are interested in mortgage modification, please contact a Connecticut foreclosure defense attorney like me to learn more about your legal rights and various options as to proceed.