When you can’t pay your mortgage on your home, you’re usually faced with foreclosure or a short sale. These aren’t always the only options though; sometimes homeowners may qualify for a loan modification.
A loan modification is a change in the terms of your mortgage which allows you to pay an amount you can actually afford every month. The change in the terms is permanent, regardless of the nature of the shortage which caused you to need one.
Sometimes the amount of the loan itself will be reduced, while other times the interest on the loan will be dropped and stabilized. Often the loan term will be extended so that the monthly dues will be reduced in turn. Usually another goal of a loan modification is to erase late charges so that the homeowner can have a fresh start.
This depends on your situation. Theoretically, any loan can be modified, and the loan can be in any status (current, past due, in default, in foreclosure, etc.).
Generally speaking though, loans will only be modified under particular conditions. There are federal programs which have been put in place by the Department of Housing and Urban Development (HUD) in order to clarify those conditions and the loan modifications which may result.
Certain programs are voluntary (incentives are provided to the lender), while others are mandatory.
On the top level, the programs to modify loans all fall under one program called Making Home Affordable (MHA). Under MHA there are options for people in different situations.
If you are behind on payments or will be soon, you should probably look into the Home Affordable Modification Program (HAMP). If you aren’t behind but are struggling to afford the rest of your bills because of your mortgage, you may qualify for the Home Affordable Refinance Program (HARP).
Another program which HAMP people may be able to get is the Home Affordable Second Lien Modification Program (2MP), which allows homeowners to modify their home equity lines of credit.
Other programs include the Home Affordable Unemployment Program (HUAP), a modification program for the unemployed, and the Home Affordable Foreclosure Alternatives (HAFA) program, which exists as a last resort for homeowners who did not qualify for other assistance. This program can help you to procure a short sale or deed-in-lieu if you need one of those options.
To get into one of these programs, you will need to contact your lender to find out if you qualify. If your lender doesn’t participate, you may be able to go through a different lender which does.
You’ll need to provide a Letter of Hardship and a number of other papers in order to start the negotiations on your home. If you have trouble along the way, you can always get in touch with HUD to see if someone can help you to find your way.
It would also probably be to your benefit to contact a lawyer and get some further counsel on your situation so that you fully understand your options and the ramifications of each choice.