What is a mortgage modification?

A mortgage modification is an agreement between a homeowner and a mortgage lender that modifies the conditions of a Note and Mortgage. A loan modification aims to bring a delinquent loan current and lower the borrower's monthly mortgage payment. A loan modification can also be used to adjust the interest rate and the mortgage term (the length of time it takes to repay the loan).

Mortgage modification requirements

In most cases, in order to get a mortgage modification a borrower must submit a written hardship application to their lender. The application generally consists of:

• Financial information, &
• Description of your financial hardship.​

Each lender will specify which documents are required for a complete application. In general, a borrower must have enough income to cover a reasonable mortgage payment as well as all necessary living expenses.​ Unemployment may be a disqualification for some banks’ loan modification program(s).

​What is a mortgage loan modification?

A mortgage loan modification is the same thing as a mortgage modification.

​How many mortgage modifications can you get?

The number of mortgage modifications that you are eligible to receive depends on the policies set by the owner and/or investor of your loan. FHA loans may be eligible for multiple modifications if the loan satisfies a laundry list of FHA criteria. If you are struggling with your mortgage after a loan modification, the best way to find out whether you are eligible for another modification is to apply again. ​

​Does mortgage modification affect credit score?

Maybe. A mortgage modification may affect your credit score, but that might not be the most important concern.  A mortgage modification will have a far less negative affect on your credit compared to a foreclosure, a lengthy default, or even a series of late payments. If any of these situations apply to you, then chances are your credit score has suffered already. 
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If you are current on your mortgage and otherwise do not make late payments, then a government backed modification program like HAMP may not affect your credit score. However, private mortgage modifications could report to the credit bureaus in ways that would negatively impact your score, such as “settled”, “compromised” or “paid less than originally agreed.”

​Is a mortgage modification a second mortgage?

No, a mortgage modification to a primary mortgage is not a second mortgage, rather it is an amendment to the original loan agreement.  In some cases, an FHA mortgage modification will create a “Partial Claim” that effectively becomes a second mortgage. A Partial Claim is essentially a balloon payment created by carving out a portion of the original mortgage balance and delaying its repayment until the end of the loan so that an affordable monthly payment can be offered to the borrower.

​What is a streamline mortgage modification?

The streamline mortgage modification program was a mortgage modification program offered by Freddie Mac and Fannie Mae that has now been replaced by the Flex Modification Program.

​What is a flex mortgage modification?

The Flex Modification Program is the current Fannie Mae and Freddie Mac mortgage modification program which replaced the HAMP and Streamline mortgage modification programs starting around March 2017. The program generally applies to primary residences, but may also apply to second homes and investment properties if the default is greater than 90 days.  For most borrowers, the process of applying for a Flex Mortgage Modification and the resulting modification agreement will be indistinguishable from prior loan modification programs.

​Do I qualify for a mortgage modification?

Only your mortgage lender can tell you for certain whether you qualify for a mortgage modification. So long as your household has regular income and the original borrower(s) are not on unemployment, it is best to apply for a loan modification when you need help and let the bank decide whether it is willing to approve you or not.

​How long does a mortgage modification take?

On average a borrower should expect to receive a decision within 30-45 days from the time that a complete mortgage modification application is submitted to the lender.  The lender will decide when the application is complete.  Borrowers working without attorneys should check back with the lender at least once per week to receive an updates on his or her application.

​Mortgage modification vs refinance

A mortgage modification agreement is a legal document which alters the repayment terms of an existing loan agreement.  A mortgage modification is typically given to financially distressed homeowners who may have a poor repayment history. There are not generally any “closing costs” when a borrower executes a loan modification.  

​To refinance a mortgage means that you are obtaining a new mortgage to payoff and replace an existing loan on a piece of property.  In New York, a formal Closing of the loan is necessary.  There may be significant “closing costs” built into the new loan, and generally applicants must pass a credit check from the new lender prior to receiving the loan.

Loss Mitigation programs

Loss Mitigation programs are the group of options that lenders, specifically mortgage lenders, may offer to a borrower to avoid a mortgage account from being in default or resulting in a foreclosure. Generally, Loss Mitigation options include mortgage modifications, short-sales and deeds-in-lieu of foreclosure. A mortgage modification is an agreement that temporarily or permanently changes the terms of your existing loan, and is designed to help you retain your property.  A short-sale occurs when you sell your property and the lender agrees to accept less than what it is owed in satisfaction of your mortgage debt. A deed-in-lieu of foreclosure (“DIL”) is an agreement in which the lender agrees to accept a deed to the mortgaged property voluntarily given by the owner when the owner’s primary interest is getting the property out of his or her name.  A DIL is a relatively rare option that a bank will typically offer only after a failed attempt to sell a property.

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