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Home Loan Modification: How to Modify Your Mortgage

This is a home loan modification guide that I put together after my successful loan modification for my parents.  Although many banks may vary in their processes, they have to follow a general guideline set out by the federal government.  Here are the steps that you need to take in order to increase your chances of a home loan modification.

1) See if you qualify for a HAMP (Home Affordability Modification Program) by going here.  Basically, HAMP is for mortgages originated on or prior to January 1, 2009.  The program is set to expire on December 31. 2013.  Here is a list of reasons why a bank might consider modifying your loan:

  • Illness
  • Loss of Job
  • Failed Business
  • Job Relocation
  • Death of Spouse or C0-BorrowerDeath
  • Incarceration
  • Divorce
  • Marital Separation
  • Military Duty
  • Reduced Income
  • Medical Bills
  • Natural or Unnatural Disasters

I am not saying they will modify your loan if you are in one of the situations above.  All I’m saying is that they will consider it.

2) Escalate your claim to the highest level possible.  For a list of who to contact, go to this page for home modification contacts.  Although it might be fruitful in the end, you are wasting a lot of time calling customer service.  You will be bounced back and forth between different customer service representatives to no avail.

3) If you do not fit within HAMP guidelines because of income, get someone in your household or a next of kin to write a letter of support for you, stating that they will contribute X amount to your monthly mortgage payment.  It might work with some  banks, other banks it might not.  Banks under the HAMP program can only reduce the interest rate down to 2% and spread out your payments to 40 years.  If you do the quick math and find that even with a 2% 40 year mortgage, you still cannot meet the 31% gross income threshold set out by HAMP, then it means you need financial help from people close to you.

Gather all financial documents.  This includes recent pay stubs, tax returns from last two years, 1099s, and any other pertinent information that you want to share with the bank or that the bank might ask for.  If you are sick, get a note from the doctor.  If you lost your job, get a letter from your former employer.

4) Write a letter of hardship.  All banks will ask you to describe your circumstance.  Don’t be melodramatic but write to be concise and use rhetoric that induces sympathy.  The people modifying your loans are human after all, with human emotion.  If your hardship letter can induce sympathy, you are more likely to get your loan modified.

5) Try to negotiate with the modifier.  I know you are angry, frustrated, and sad.  But when you are engaging in a conversation with the bank, try not to take it out on the loan modifier.  If you are nice, they are more likely to champion for you.  They are there to help you.  So help them help you.

6) Wait.  Even taking all these steps is not a guarantee in getting your loan modified.  However, this is a good guideline for your to start.  I wish you the best of luck!

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