How do I get my mortgage modified so I can avoid foreclosure?

What a Mortgage Modification Changes#

A mortgage modification is a process in which the lender, at the homeowner’s request, changes the terms of an existing mortgage, such as the interest rate, monthly payment, repayment term, or outstanding principal. The goal is to make the payment more affordable or to help the homeowner avoid foreclosure.

Depending on the situation, a homeowner may be eligible for a modification under either an internal plan through the mortgage company or a government-sponsored program. Depending on the program, there will be certain criteria that must be met in order to be approved for a modification.

Why the Process Takes Time#

Getting a mortgage modification approved is not quick. If the request is approved, the homeowner typically must complete a trial period of about three months, making the new modified payment on time, before the lender issues a final approval.

A modification request requires many documents: proof of income, an affidavit attesting to your hardship, a current record of your household expenses, recent tax returns, bank statements, and a variety of other documents that your lender may require. Typically, these documents go to your loan service provider, not directly to the actual lender, and the servicer will need to review a complete package before sending it to the underwriting department. If your documents are more than three months old when your case is reviewed, you’ll have to provide updated documents. For example, you’ll have to provide three months’ worth of paystubs when you start the process, and again every three months while your modification is being reviewed. Don’t assume your servicer will call to tell you that you need to send updated documents; you’ll need to be proactive.

What Happens If You Are Already Behind on Payments#

If a homeowner is three or more months behind on mortgage payments, the loan servicer may not accept payments while the mortgage modification request is being reviewed. This is an important detail to understand before you fall further behind, since it can affect how you plan your finances during the review period.

What to Do While Waiting for a Decision#

While waiting for a decision, remember that there is still a mortgage to pay. If you entered the process current on your loan, stay current: continue to make your mortgage payment on time. If the modification is denied, you will still be current on your mortgage.

If you entered the process behind on your mortgage, continue to make payments if you can. If your hardship was due to a temporary setback, your servicer will want to see that you are now able to make payments, and there is no better way to show you can afford your mortgage than to make payments on time every month. Be sure to keep accurate records of all payments made or attempted.

If your servicer will not accept payments while your request is being reviewed, think about what you would do if the modification is denied: whether you have the means to get your account current on your own, whether you would seek a short sale or deed-in-lieu, or whether you would borrow money from family. These are things best discussed with a certified housing counselor or an attorney.

Trial Modification#

During the trial period, make every trial payment on time and in the correct amount, or you may default on your trial plan and be right back to square one. You may also need to provide proof that your property taxes and homeowner’s insurance premiums are up to date. Once your trial period is over, your lender may still require more documentation before finalizing your loan modification, generally including recent pay stubs to prove that your income remains stable.

When the Trial Modification Is Complete

After a trial period ends, continue to make your monthly payments until you receive final approval. Failure to continue making monthly payments could result in your request being denied, and you would then be liable for any payments missed after your trial period ended. Check with your mortgage company, a HUD-certified housing counselor, or an attorney to determine your particular lender’s policies.

Once your loan is officially modified, your lender will send you a packet of information containing the terms of your new mortgage, including your new interest rate, monthly payment, and loan terms. Read this information very carefully and follow the lender’s instructions for signing and returning the documents within the required amount of time. Never sign any document without reading it thoroughly.

The best piece of advice for people struggling to pay their mortgage is to stay in contact with the lender, either directly or through a HUD-approved housing counseling agency. The worst thing to do is nothing at all.

Alternatives That Can Limit Credit Damage#

A mortgage modification is not the only path forward. Other options can keep a foreclosure proceeding from further damaging a homeowner’s credit.

Free Housing Counseling From a HUD-Approved Nonprofit#

Cambridge Credit Counseling is a nonprofit agency approved by the U.S. Department of Housing and Urban Development to provide housing counseling services throughout the country. Cambridge Credit Counseling provides foreclosure intervention and default counseling to residents of Massachusetts, Connecticut, New York, Missouri and Kansas. Cambridge Credit Counseling is a HUD-approved housing counseling agency offering services to help with all types of housing issues.

Because a modification request involves many documents that must be kept up to date, it is always recommended that homeowners seek the help of a HUD-approved housing counseling agency to guide them throughout the entire process. A housing counselor acts as a liaison between the homeowner and the mortgage provider, making sure all of the appropriate documents have been provided to the mortgage company and that those documents are always up to date. See a list of HUD-approved agencies in your area.

What to Do Next#

Residents of Massachusetts, Connecticut, New York, Missouri and Kansas can schedule an appointment with a housing counselor for free mortgage modification help from Cambridge Credit Counseling by calling (800) 757-1788. A counselor can walk through your situation and explain what options, including a mortgage modification or one of the alternatives above, may fit your circumstances.