How to Avoid Foreclosure with a Mortgage Modification

Requesting a mortgage modification is one method you can use to attempt to avoid losing your home to foreclosure. This guide to how to avoid foreclosure with a mortgage modification will detail the steps you need to take as you work through the process.
Disclaimer

The content in this page is not a substitute for professional financial advice. Please contact your financial adviser before using the information presented here.

Introduction
- A mortgage modification is a permanent change in one or more of the terms of a mortgage.Bankrate.com: Modify Or Streamline Your Mortgage to Save Money It is one tool that a homeowner can use when facing foreclosure. When considering a modification, and before applying to your lender for the modification, you must first determine if your mortgage is eligible to be modified and assemble detailed information to support your request.
Step 1: Is Modification an Option?
- Traditional modifications can usually only be done if the original lender still holds the loan.Bankrate.com: Modify Or Streamline Your Mortgage to Save Money If your loan is part of such a deal, the terms usually can't be modified unless you are eligible for the 2009 Making Home Affordable plan.FinancialStability.gov:Making Home Affordable Modifications To be eligible for a Making Home Affordable Modification, you must meet the following criteria:
1. The mortgage must be for a home that is your primary residence.FinancialStability.gov:[http://www.financialstability.gov/makinghomeaffordable/index.html Making Home Affordable Modifications
2. The mortgage in question must be a first mortgage.FinancialStability.gov:[http://www.financialstability.gov/makinghomeaffordable/index.html Making Home Affordable Modifications
3. The amount owed on the mortgage cannot exceed $729,750.FinancialStability.gov:[http://www.financialstability.gov/makinghomeaffordable/index.html Making Home Affordable Modifications
4. You must have sufferred a change in circumstances creating a hardship since you took out the loan, or the interest rate must have increased, causing the payments to become unaffordable.FinancialStability.gov:[http://www.financialstability.gov/makinghomeaffordable/index.html Making Home Affordable Modifications
5. The mortgage must have been taken out prior to January 1, 2009.FinancialStability.gov:[http://www.financialstability.gov/makinghomeaffordable/index.html Making Home Affordable Modifications
Step 2: Examine Your Budget
- Determining your financial position is the first thing you should do when considering using hardship as a reason to request a mortgage modification. The bank will take a long hard look at your financial situation to make sure you've made any necessary sacrifices before asking for a modification of the terms of your loan.
1. Look at all opportunities to increase the amount of cash you have available to pay down your mortgage.
  1. Selling possessions, cashing out whole life insurance policies, or withdrawing from CDs can generate cash. These may be good options if the financial difficulties are expected to be short-term.Consumerist: How to Find Some Cash
  2. Contact a financial advisor before liquidating retirement assets such as 401Ks or IRAs.
  3. Consider taking on a second job to increase your income.Consumerist: How to Find Some Cash
2. Examine your monthly expenses for ways to economize.U.S. News and World Report: 8 Ways to Cut Back Without Sacrificing Lenders will want to see that you've examined all the options before beginning to negotiate loan modifications.
Step 3: Gather Information
- When you request a modification, you'll need to be prepared with documentation about your financial circumstances. You also need to be prepared to defend the hardship that you are basing your modification request on.HSBC: When Payment Difficulties Arise The lender will usually require:
1. Last four bank statements and pay stubsCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
2. Tax returns and W-2s for the past two yearsCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
3. A detailed list, with valuation, of all your assetsFinancial Stability.gov: What Do I Do Next?
4. Your most recent mortgage statements for all outstanding mortgages and equity lines secured by the property
5. A letter detailing the reasons for the hardship modification requestFinancial Stability.gov: What Do I Do Next?
6. If the property is for sale, you should include a copy of the listing agreementHSBC: When Payment Difficulties Arise
7. The most recent property tax billCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
8. The latest homeowner's insurance statementCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
9. Account balances and monthly payments for all other debt, including automobile loans or leases, student loans, and credit card debtFinancial Stability.gov: What Do I Do Next?
10. Utility bills, including telephone and cell phone statementsCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
11. Medical, dental, and life insurance billsCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
12. Itemized list of medical expenses not covered by insuranceCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
13. School tuition and child care bills
14. Any documents supporting the specific cause of the hardship, such as a death certificate, divorce papers, or notice of termination from your job.CreditInfoCenter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
Step 4: Contact Your Lender
- Now that you have assembled your information, you can contact your lender and begin the process of applying for a hardship modification.HOPE NOW: Mortgage Company Directory
1. Begin with the customer service number that can usually be found on your mortgage statement.
  1. Explain that you are experiencing financial hardship, and would like to speak to the department that manages modifications.
  2. They will usually transfer you to the "loan workout" or "loss mitigation" unit.SF Personal Finance Examiner: How to Request Home Loan Modification
2. When you speak to the loan workout officer, explain that you are suffering financial hardship and would like the terms of your mortgage modified so that you can continue to make payments.
  1. Specifically request to be considered for a Home Affordable Modification if you are eligible.Financial Stability.gov: What Do I Do Next?
  2. Take notes during your conversation, making sure to record the date of your call and the name of the representative you spoke to.SF Personal Finance Examiner: How to Request Home Loan Modification
3. After the call, you'll want to follow up with a letter summarizing your discussion. At the same time, the bank will probably have a specific modification application that needs to be completed.HSBC: When Payment Difficulties Arise
  1. Complete the application, including copies of the documentation you gathered in Step 1.
  2. Return the information quickly, as hardship modifications can take up to 120 days from the time you initiate the process.CreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
4. Keep copies of all correspondence you have with the bank, and follow up to make sure that they have received everything.
Step 5: Consult an Attorney or Credit Counselor
- The Home Affordable Modification program was introduced on March 4, 2009, so many banks and servicers may not have realigned their procedures yet. If you meet resistance when you apply, it may be helpful to consult with an attorney or credit counselor as you negotiate with your lender.
1. If you hire an attorney, make sure they are experienced with real estate law.MSNBC: Which Is Worse: Foreclosure Or Bankruptcy? (October 29, 2007)
2. Avoid companies that promise to prevent foreclosure for a fee.Better Business Bureau: Foreclosure Rescue Scams Both the state and federal governments sponsor credit counseling services at no charge.MSNBC: Which Is Worse: Foreclosure Or Bankruptcy? (October 29, 2007) U.S. Department of Housing and Urban Development: Tips for Avoiding Foreclosure
  1. A housing counselor will not only explain laws and procedures surrounding loan modification, but they can also present other options that may be able to help save your home. U.S. Department of Housing and Urban Development: Tips for Avoiding Foreclosure
  2. Select a U.S. Department of Housing and Urban Development (HUD) approved counselor. U.S. Department of Housing and Urban Development: . ..Housing Counseling Agencies
Conclusion
- A mortgage modification may be able to help you stay in your home by altering the terms of your mortgage to lower your monthly payments. Do your homework up front so you can provide all the necessary information to your lender, making it easier for them to approve your request. When you talk to the bank, mention the federal Home Affordable Modification program as it has recently expanded the types of mortgages available for modification.
How to Avoid Foreclosure with a Mortgage Modification Images Powered by Flickr and Google