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How to Do a Loan Modification

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Loan application for loan modification

A loan modification can significantly reduce a mortgage payment.

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Home owners who find themselves upside down on their mortgages may qualify for a loan modification that will reduce monthly payments, making the loan more affordable. However, contrary to popular belief, a home owner does not need to owe more than the home is worth to submit a request for a loan modification. Those with adjustable-rate mortgages and equity may qualify to modify a loan as well.

Most of the loan modification requests come from home owners who prefer to try to hang on to their home than let it go to foreclosure or attempt to do a short sale. Both short sales and foreclosures affect credit in an identical manner if a Score Factor 22 is entered into a borrower's credit report.

However, some loan modifications call for debt forgiveness, which may include a negative impact on credit as well if the lender writes off part of the existing mortgage.

By fall of 2008, the U.S. government, as part of its Bail Out Program, applied pressure on banks, pushing banks to try to work out loan modifications with borrowers. As a result, some banks decided to hold off on filing foreclosure notices against delinquent borrowers for three to four months, buying home owners more time.

On the following pages, you will find loan modification guidelines from major banks such as Citigroup, Countrywide, JPMorgan Chase, IndyMac and Wells Fargo, including the HOPE for Homeowners program guidelines and revisions, and Fannie Mae / Freddie Mac loan modifications.

These programs offer a variety of ways to stop or avoid foreclosure such as forbearance, workouts, forgiveness and refinances.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

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