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Loan Modification

Borrowers in need of a loan modification must work with their lender's loss mitigation department. In order to be successful, homeowner's should take time to become educated about the process involved and be prepared to provide financial records.

In order to obtain a loan modification, borrowers must meet certain criteria. Obviously, lenders want to make certain borrowers can afford modified loan payments. Therefore, borrowers should be prepared to provide bank statements, payroll records, detailed list of income and expenses and previous years' tax records.

Borrowers who do not have copies of tax returns will be required to provide their lender with a 4506 tax form. This Internal Revenue Service document provides a transcript of filed tax returns and is used to verify stated income amounts on the original loan.

Form 4506-T is very revealing. Borrowers who inflated their income during the loan origination process could end up facing mortgage fraud charges when applying for a modified mortgage loan. As long as borrowers stated the truth, there should be nothing to worry about when providing their lender with an IRS tax return transcript.

Many homeowners are taking advantage of Obama's 'Making Home Affordable' plan to obtain loan modifications or mortgage refinance. The loan modification program is available to anyone with a home loan, while the mortgage refinance program is offered only to homeowners whose loans are secured through Fannie Mae or Freddie Mac.

In order to participate in the Making Home Affordable loan modification program borrowers must contact their lender's loss mitigation department. Presently, lenders engage in Making Home Affordable programs on a voluntary basis. If your lender is not participating, they can advise of available options.

Home Affordable loan modification involves permanently altering the terms of the mortgage loan to reduce payments. Obama's making home affordable plan requires lenders to reduce payments to no more than 31-percent of borrowers' gross income.

This amount includes the principal, interest, mortgage insurance, homeowner's insurance and homeowner's association dues, if applicable. The principal amount of home loans is not reduced. Instead, lenders reduce the amount of interest charged on the mortgage note and can extend payments up to 40 years.

Mortgage lenders and borrowers can receive monetary incentives under the Making Home Affordable loan modification program. Lenders can receive a maximum of $3000 per modified loan, paid out at the rate of $1000 per year. Borrowers can receive cash incentives of up to $5000 over the course of five years as long as home loan payments are paid in full and on time each month.

Borrowers who are having difficulty paying their home mortgage loan must be proactive in taking steps to rectify their situation. Once properties fall into foreclosure the options to help borrowers save their property are reduced.

Borrowers should beware of any solicitations from loan modification or foreclosure assistance companies that charge a fee. The Government has pumped billions of dollars into the Financial Stability Act of 2009 to assist homeowners and provide information and resources at no cost.

The most authoritative resource for obtaining information about home affordable loan modification programs is Additionally, borrowers can obtain no- or low-cost housing counseling through the Department of Housing and Urban Development by visiting

Before you go, take a moment to browse our loan modification article library. Here you can find additional home loan modification and mortgage refinance information, along with resources to help you make an informed decision and save your home from foreclosure.

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Published on March 11, 2010 at 01:03 AM

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