What is a mortgage loan modification

There has been a lot of attention placed on home modification loans as a way to help prevent home foreclosures. A home modification loan is an agreement that actually changes the term of your existing loan. The Making Home Affordable program uses government subsidies and incentives to reduce principals and lower interest rates on conforming loans.

While loan modification is the right solution for some struggling homeowners, it is not the solution for every struggling homeowner.  Following are basic criteria to qualify for the Making Home Affordable loan modification program:

  • The property is owner-occupied
  • The unpaid principal balance that is equal to or less than a certain amount (based on number of units up to 4)
  • The loan originated on or before January 1, 2009
  • The mortgage payment greater than 31% of gross income
  • There is financial hardship that can be documented

If you are having trouble making your mortgage payments and are considering loan modification, there are some things you should know.

  1. You don’t have to go it alone. A HUD-certified housing counselor can help you assess the situation, create a plan of action, and outline next steps.
  2. It pays to be proactive. The most important thing to do is to take action. Seeking help sooner rather than later can increase the number of options you have available.
  3. There may be other options. Loan modification is only one of the many possible solutions to foreclosure. 
  4. Be patient, but persistent.  It takes time (and paperwork) to make changes.  Be sure to keep copies of all related documents for your files and be aware of any deadlines.
  5. You must beware of scams. Never agree to transfer your deed and do not make payments to anyone but your lender without their approval. There should not be a fee associated with housing counseling.

Finally, don't assume that there isn't help for your situation; there are new programs being launched all the time. For example, there is a new program designed to help people who unemployed. Part of a trained housing counselor’s job is to have the most up-to-date information available so that he or she can help identify your options.

For more information or to schedule an appointment with a HUD-certified housing counselor, visit our section of the website dedicated to providing foreclosure help. You can prepare for your appointment by checking to see if you are eligible for the Making Home Affordable program. To do this, you can use the tools found at MakingHomeAffordable.gov.

Kim McGrigg is the former Manager of Community and Media Relations for MMI.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.