What's a Mortgage Modification and How Is it Done?

What's a Mortgage Modification and How Is it Done?

The homeowner and the lender must agree to modify a mortgage note. The Real Estate Settlement Procedures Act, or RESPA, a national law regulating banks, forbids mortgage lenders from modifying or changing a mortgage note in any way without the homeowner'therefore approval. This prevents the creditor from increasing the interest on a mortgage.


When the real estate bubble popped and the nation descended into the downturn of the late 2000s many homeowners found themselves not able to cover their mortgages. The Barack Obama administration created the Making Home Affordable application, which provided government incentives for mortgage lenders to modify mortgages.


The Making Home Affordable modification plan was made to help homeowners fighting to make their mortgage payments prevent foreclosure. The modification changes the loan’s details indefinitely. The modification may change the rate of interest, the loan amount or both.


The homeowner must reside in the house as a principal residence, must have obtained his current loan before Jan. 1, 2009, must have been at least 30 days late on a mortgage payment in the last year, and must owe no more than $729,750. In addition, the current mortgage payment must be more than 31% of the homeowner's gross annual income.


Homeowners must contact a Housing and Urban Development-approved housing counselor and get free counseling. Homeowners can contact HUD at 888-995-4673 to get a listing of free home counselors. The homeowner must then complete the application for modification, 4506T-EZ, and provide the current mortgage lender with evidence of income.


In the event the homeowner participates, the lender will temporarily modify the loan so the payment is no more than 31% of gross income. A trial period will ensure that this payment is affordable as well as the homeowner is willing to make the payments. The loan indefinitely modifies after the trial period is completed successfully.

See related