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When the mortgage market changes, you may think about refinancing. Sometimes you can save the money involved in refinancing by asking your existing lender to modify the terms of your existing mortgage instead. This guide to how to modify your mortgage will walk you through what you need to do.
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Tips on Modifying Your Mortgage
- If you're in financial difficulty, don't wait
- Contact your lender before you miss a payment
- Have copies of your w-2s, pay stubs, and tax returns
- Be persistent
- Follow up in writing
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Introduction
- A mortgage modification is a permanent change in one or more of the terms of a mortgage. If interest rates have dropped, a lender may be willing to modify the terms of a loan to keep your business, rather than have you refinance with another institution.Bankrate.com: Modify Or Streamline Your Mortgage to Save Money Modification can also be requested in case of hardship, as part of a process to avoid foreclosure.U.S. Department of Housing and Urban Development: Loan Modification
Modification vs. Streamlined Refinancing
- Modifications can generally only be done if the original lender still holds the loan. There may be a fee of several hundred dollars, but there will be few documents to complete, and you won't need to go through a new closing.Bankrate.com: Modify Or Streamline Your Mortgage to Save Money
Streamlined Refinancing
- Most loans are not held by the original lender.Mortgage Professor: Refinancing Vs Contract Modification (June 29, 2007) It is a common practice for loans to be sold to institutions such as Fannie Mae, Freddie Mac, or Ginnie Mae, where they are bundled together and used as collateral for a mortgage-backed security, which is then sold to investors. If your loan is part of such a deal, the terms usually can't be modified, but the loan may be eligible for refinancing. The loan servicer may offer streamlined refinancing in order to keep your business.Bankrate.com: Modify Or Streamline Your Mortgage to Save Money
- Modification keeps the original loan with a change in terms; refinancing pays off the old loan and creates a new one. In this case, the original loan will be closed, and a new loan issued under the new terms.
- Modified loans keep the same due date; refinancing can extend or shorten the term as desired.Bankrate.com: Modify Or Streamline Your Mortgage to Save Money
- Streamlined refinancings will close quickly, sometimes without a new appraisal.Bankrate.com: Modify Or Streamline Your Mortgage to Save Money
- Fees and closing costs vary with streamlined refinancings, so shop around.Bankrate.com: Modify Or Streamline Your Mortgage to Save Money
- As fees and closing costs vary with a streamlined refinancing, they are not always the best deal. If you are not in a hurry, you might be able to find a better deal with a new lender.Bankrate.com: Modify Or Streamline Your Mortgage to Save Money Mortgage Professor: Refinancing Vs Contract Modification (June 29, 2007)
Hardship Modification
- If you're at a point where you think that you may not be able to make your mortgage payments, you may want to request a hardship modification.
- A hardship is generally considered a situation outside of your control that may lead to difficulty meeting your financial obligations, such as:
- Certain circumstances can help to influence the bank to grant a hardship modification. These are considered red flags that indicate you are at higher than average risk for default:CreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- You have an adjustable rate mortgage.CreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- Your current rate is over 8%.CreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- The balance due on the loan exceeds the current market value of your home.CreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- You've attempted to refinance and been rejected.CreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- When you find yourself in a hardship situation, you should contact your lender. The bank may wait until you've missed a payment or two before beginning to negotiate, but you should inform them as soon as you know you have a problem.
- If you think you're having a temporary problem, you may ask the bank to defer payments, without penalty, until the crisis has passed.MSNBC: Which Is Worse: Foreclosure Or Bankruptcy? (October 29, 2007)
- You may be looking for lower payments to make the mortgage more manageable; this can be achieved by either lowering the interest rate or extending the term of the loan.MSNBC: Which Is Worse: Foreclosure Or Bankruptcy? (October 29, 2007)
- If the market value of your home is now less than the amount of the mortgage, you may be hoping that some of your debt will be forgiven.
Watch Out for Scams
- A mortgage holder can make a request for modification directly to the bank, without the intervention of a third party. Although illegal in most states, there are companies who offer to help you with the process for a fee.The Boston Channel: Mortgage Modification Predators Take Money and Run
- Don't pay a fee to a third party to "assist" with mortgage modification.The Boston Channel: Mortgage Modification Predators Take Money and Run
- There are government agencies who can help at no cost.The Boston Channel: Mortgage Modification Predators Take Money and Run CreditInfoCenter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
Step 1: Gather Information
- Just as with a traditional refinancing, when you request a modification, you'll need to be prepared with documentation about your financial circumstances.HSBC: When Payment Difficulties Arise You'll need your:
- Last four bank statements and pay stubsCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- Tax returns for the past two yearsCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- W-2s for the past two yearsCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- Most recent mortgage statement
- If you're applying for a hardship modification, you'll need to prepare a letter detailing the reason for the hardship. You'll also need to provide additional information, which may include:
- A copy of the listing agreement, if the property is for saleHSBC: When Payment Difficulties Arise
- Property tax billCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- Homeowner's insurance statementCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- Documentation of automobile loans, credit card statements, and other debtCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- Insurance statements for assets used to secure other debtCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- Utility bills, including telephone and cell phone statementsCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- Medical, dental, and life insurance statementCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- Itemized list of medical expenses not covered by insuranceCreditInfoCeneter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
- School tuition or child care bills
- Any documents supporting the specific cause of the hardship, such as a death certificate, divorce papers, or notice of termination from your jobCreditInfoCenter: How to Fend off Foreclosure By Applying for Loan Modification (March 5, 2009)
Step 2: Contact Your Lender
- After you've assembled your information, you'll need to contact your lender and begin the process of applying for a modification.HOPE NOW: Mortgage Company Directory
- Begin with the customer service number that can usually be found on your mortgage statement.
- Explain what you're looking to do, and ask about the bank's process for modifications.
- They will usually direct you to the "loan workout" or "loss mitigation" unit.SF Personal Finance Examiner: How to Request Home Loan Modification
- When you speak to the loan workout officer, clearly and concisely explain what you're looking for.
- Take notes during your conversation, making sure to record the date of your call.SF Personal Finance Examiner: How to Request Home Loan Modification
Step 3: Follow Up
- After the call, you'll want to follow up with a letter summarizing your discussion with the bank's representative. Each bank has its own policies and procedures governing modifications, which usually include a specific modification application that must be completed.HSBC: When Payment Difficulties Arise
- Complete the application, including copies of the documentation you gathered in Step 1.
- 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)
- Keep copies of all correspondence you have with the bank.
- Confirm that they have received the forms and documentation.
Conclusion
- Contacting your lender to request a mortgage modification can be a simple way to secure more favorable terms without going through a full refinancing. Gather your paperwork ahead of time so that you are prepared when you call the loan workout specialist at your bank. Follow up in writing, and be persistent if the bank's initial response is no.
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