A mortgage modification is the process whereby the homeowner negotiates with the mortgage company or bank to reduce their monthly mortgage payment. This is not a refinance, and does not affect the credit score of the homeowner. The process is typically handled by the loss mitigation department of the bank, and can be a frustrating process for the homeowner.
A forensic review of the mortgage documents may be helpful in the mortgage modification negotiation process. Essentially, the mortgage documents are reviewed to discover any legal violations, particularly certain laws called RESPA and TILA. Strict compliance is required to these laws, and any deviation from those requirements may mean that the homeowner has a good argument to rescind the loan or mortgage completely, or at least negotiate with the mortgage company to reduce the principal amount of the loan.
The mortgage company or bank will consider the earnings of the homeowner in determining the terms of the new mortgage. There must be a showing that the homeowner does have a hardship, but can afford to pay the payments. The hardship can be as simple as the fact that the homeowner is not earning as much as they did when they got the loan originally.
The new loan will typically be a reduced interest rate, sometimes an interest only payment for a period of time, followed by a low interest rate that is fixed for the remainder of the loan. This is the part that is negotiable, and can be affected by a forensic legal review of the loan documents that shows certain legal violations. The goal of the mortgage modification is to reduce the monthly mortgage payment to a monthly amount that is as low as possible, and that the homeowner can afford to pay. A mortgage modification is an excellent tool to use to avoid the foreclosure process and allow the homeowner to keep their home.