Understanding mortgage loan modifications
With a mortgage loan modification, the lender makes a permanent change to the original mortgage agreement so the homeowner can continue making monthly payments. There are several different ways a mortgage can be modified.
The federal Home Affordable Modification Program is now in place to help beleaguered homeowners. There are guidelines as to who can qualify for the program and it allows the lender to refinance the mortgage at a lower interest rate, thereby lowering the monthly mortgage payment.
Another form of loan modification involves stretching out the length of the loan. The monthly mortgage payment is lowered by spreading the remaining loan balance out over a greater period of time.
Lenders can offer a principal forbearance on the loan. This means the lender will defer a portion of the principal balance until a later date. This does not mean any of the principal amount is forgiven. Homeowners should be aware they could owe a balloon, or lump sum, payment at the end of the loan, or if the home is sold or refinanced.
Finally in some cases, a lender may be willing to forgive a portion of the loan principal. However this type of mortgage loan modification is optional on the part of the lender. There is no guarantee a lender would simply forgive part of the principal balance of the loan, especially if it is not a case of extreme hardship.
Anyone facing a foreclosure should seek help from a non-profit agency that has housing counselors certified by the U.S. Department of Housing and Urban Development. These agencies offer free counseling and can fully explain the mortgage loan modification options. Unfortunately, a great number of mortgage modification scams have sprung up as a result of the housing crisis. It's important for homeowners to make sure they are getting reliable help from a counselor who is knowledgeable in the area of mortgage loan modifications.