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What is Mortgage Modification?

By Kat DeLong

Do you have a home loan you can no longer afford? Do you have a good interest rate but lost your job or face other economic difficulties? To help homeowners avoid foreclosure, President Obama has authorized a $75 billion plan to restructure distressed mortgages to keep borrowers in their homes and slow price declines.

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Mortgage Modification Plan

In this mortgage modification plan, participating loan servicers must reduce the borrower's monthly payments to no more than 38 percent of their gross monthly income. The servicer can reduce the interest rate to as low as 2 percent, or increase the loan duration to as long as 40 years. The government would then step in to bring that amount down to about 31 percent of the gross monthly income.

This program is voluntary for lenders - ideally they would analyze the cost of foreclosure versus loan modification and offer borrowers modification if it cost less. It differs from a standard repayment plan, where the borrower has fallen behind with payments and agrees to repay the money owed on a specific schedule. This mortgage modification plan will actually reduce the amount that is paid on the loan every month.

Plan Requirements

The qualifications for mortgage modification:

How to Take Advantage

If you qualify for a mortgage modification, how do you get one? Unfortunately, it isn't as easy as picking up the phone and speaking to a loan modifier, but prepared and persistent homeowners will benefit.

The first piece of advice is to document your income and expenses. Save bills, paycheck stubs and even the envelopes from any correspondence you receive from your lender - postmarks that can verify dates may mean the difference between success and failure. You will need as much ammunition as you can when you are negotiating your modification.

Secondly, even if you can't pay your mortgage, put away as much of it as you can - don't spend it on other bills. Lenders will want to see that you have "good faith" money when it comes to sitting down to discuss terms.

Now it's time to hit the phones. Call your lender and try to reach someone in the loss mitigation department - not collections. Try to get past the first tier in that department and deal with someone higher up in the organization. If you have trouble, you can ask an attorney or mortgage specialist for help. Be wary of third-party companies who offer mortgage modifications for a fee - many of them are scams who are out to take advantage of borrowers in desperate situations.

Good luck! Refinancing could save you hundreds each month. Start Now!

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