Mortgage Loan Modification Made Easy With the Making Home Affordable Plan

By Lindsy Emery

Mortgage loan modification is just what it sounds like: adjusting the terms of a loan in some way. It's really up to lenders to decide if and how they want to modify any given loan. They may follow a more or less standard procedure, but most modifications are done on a case-by-case basis. If you're looking to get a loan modification, use a professional financial counselor to talk to your lender about it. Just be cautious and make sure that your modification will offer solutions to your financial difficulties. A modification that doesn't lower your monthly payment, for example, won't help you at all.

Loan modifications in the past have not been wildly successful because of the lack of any standard set of guidelines to govern them. For this reason, the President created the new Making Home Affordable plan. From now through 2012, U.S. homeowners with a monthly mortgage payment above 31% of their gross monthly income can get loan modifications that lower their monthly payments to affordable rates.

Naturally, there are a few extra criteria that eligible homeowners must meet. Only people who personally occupy the home with the loan they want modified are eligible. The loan to be modified must also be back by Fannie Mae or Freddie Mac, and it must have been issued before 2009.

What's so great about obtaining a loan modification with the Making Home Affordable plan? Part of the plan is a $75 initiative known as the Homeowner Stability Initiative. The money in this initiative is for paying incentive payments to lenders and borrowers when they hash out loan modifications and make successful payments on modified loans. Lenders get $1,000 for every eligible loan modification, plus additional payments when the borrower stays current with a modified loan. And homeowners get $1,000 per year for up to 5 years when they make consistent on-time payments on a modified loan.

Even though you can seek loan modification through other avenues, the Making Home Affordable plan is the best way. It allows for incentive payments and provides lenders with a consistent set of steps for reducing monthly payments. First they must lower interest rates, then they may extend the term of the loan, and finally they can forbear principal if they choose. The goal is to reach a monthly payment below 31% of the gross monthly income of the homeowner.

This plan requires you to get a financial counselor who can represent you and direct you in the mortgage loan modification process. Then you'll need to draft a hardship letter requesting a modification and send it to your lender along with financial information including verification of income.