A loan modification lowers your monthly mortgage payments by reducing your interest rate or increasing the length of the home loan. To qualify for a loan modification, you often need to prove that you’ve faced financial hardship. You also have to meet other requirements set by your lender. Hiring a loan modification attorney can help ensure the process goes smoothly and is successful — especially if you’re facing foreclosure. That said, you aren’t required to hire a lawyer as part of the process.
Written by Curtis Lee, JD.
Updated July 12, 2023
If you’re struggling to keep up with your mortgage payments, you may be eligible for a loan modification. Modifying your loan can make your monthly payments more affordable by giving you a lower interest rate or increasing the repayment term of the loan. You aren’t required to have an attorney help you with a loan modification. But if you’re facing a foreclosure or you’re uncomfortable pursuing a modification on your own, you may want to get legal advice.
Mortgage Loan Modifications: The Basics
A mortgage loan modification includes one or more changes to a mortgage’s terms. The goal is to make monthly payments more affordable for the borrower. Lenders may agree to modify a mortgage by:
Lowering the interest rate
Extending the length of the loan
Converting the mortgage from an adjustable rate to a fixed rate
Combining missed payments into the principal balance or tacking them on to the end of the mortgage
What Qualifies You for a Loan Modification?
To apply for a loan modification, you’ll need to meet the following requirements:
Have a mortgage that’s in default or at risk of default.
Be legally responsible for the loan. You’re more likely to get a loan modification approved if you also own the real estate that secures the mortgage.
Have a specific financial hardship that led to, or will lead to, a default on the mortgage.
Possess the financial means to make payments on the modified mortgage.
What Documents Do You Need To Provide To Modify a Mortgage Loan?
If you apply for a loan modification, you’ll also need to provide:
A current summary of your finances
The estimated value of the mortgaged property
Copies of tax returns
Proof of income, such as pay stubs
A letter explaining your financial hardship and supporting documents, such as medical bills, court documents (like a divorce decree), or a death certificate
How a Modification Attorney Can Help
As a homeowner, you aren’t legally required to hire an attorney to help you modify your mortgage loan. But having a lawyer can be helpful when things aren’t going well. A loan modification lawyer can also provide peace of mind.
Here are a few ways a modification lawyer can help:
They can help you complete your loan modification application and avoid mistakes when filling out the forms or providing documents.
They know how to deal with different mortgage companies and home loan modification programs. They can also make sure that your mortgage lender follows all laws and rules during the loan modification process. If the lender violates any rules, the lawyer may use this to your advantage during the loan modification process. It can also help during an appeal if the lender denies your loan modification request.
If you want to appeal a denial, a lawyer can explain the process and help you submit a convincing appeal. And if they were representing you during the loan application process, they may already have supporting arguments to present. Some people only hire a lawyer if and when their loan modification attempt is denied and they want to appeal the denial.
They can help you decide whether pursuing a loan modification is worth the effort involved. Maybe your financial situation means that it’s almost impossible to get a loan modification. Or perhaps there are other options to consider to stop foreclosure. Either way, a lawyer can give you an idea of what to expect.
How Loan Modification Negotiation Works
Loan modification can happen in several different ways. Sometimes the process is complex and intimidating. This is why some people hire a lawyer to help them navigate the process successfully. This is especially true if your modification goes into the court system or is subject to a complicated government program.
Here are some common loan modification processes:
Direct negotiation with the lender: The homeowner contacts the lender directly to modify the mortgage loan. If you do this, be sure to talk with the lender through written communication so you have records and proof if any disagreements arise.
Judicial foreclosure conference: If your home goes into a foreclosure process, you can contest it in court with the help of a foreclosure attorney. Some state or county courts offer foreclosure mediation, where the homeowner and lender can discuss alternatives to foreclosure. One such alternative is loan modification. In other cases, you may need to go to court.
Bankruptcy loss mitigation proceedings: In some bankruptcy cases, creditors who have debts secured by an individual’s home can discuss whether a loan modification is possible to avoid foreclosure. This usually happens in a process overseen by the bankruptcy court.
Streamline proceedings: Eligible mortgage holders can take advantage of streamlined proceedings, such as the Streamlined Modification Initiative. To be eligible, most affected mortgages need to be guaranteed or owned by Fannie Mae or Freddie Mac and be more than 90 days delinquent. In this program, your lender sends you a loan modification offer. You don’t need to submit a loan modification application or provide evidence of financial hardship.
Special loan modification programs: If you have a conventional home loan, you may be eligible to participate in a loan modification program. Contact your mortgage servicer to learn what programs are available for you. There are also special programs from government-backed mortgage loans. The Making Home Affordable program, which includes the Home Affordable Modification Program (HAMP), is one example. Borrowers withVA home loans also have several programs to consider.
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What Do Lenders Consider in the Mortgage Modification Application Process?
Lenders or mortgage servicers examine several factors when reviewing a loan modification application. Your financial information is the most important one. Lenders also look at your explanation of your financial struggles. When reviewing your loan modification application, the mortgage company or bank will also examine the following:
Housing expense ratio: Sometimes called a front-end ratio, this is a comparison between your pre-tax income and your housing expenses.
Debt-to-income ratio: This is all your monthly debt payments divided by your gross income each month.
Loan-to-value (LTV) ratio: The LTV is calculated by taking the mortgage amount and dividing it by the appraised property value of the home serving as collateral for the mortgage.
Loan history: Mortgage servicers consider whether you’ve been late or missed a payment and/or the number of times you’ve applied for a loan modification.
Credit score: This is an attempt to summarize your creditworthiness into a single number. You can improve your chances of getting your loan modification request approved by improving your credit score before applying.
Evidence of financial hardship: This is your opportunity to present the human reasons for why the bank should modify your mortgage. Financial hardships that may warrant a loan modification include events like a divorce, the death of a spouse, a lost job, or a serious medical issue.
The Lender’s Decision
After you request a loan modification and submit your application, the lender can respond in three ways.
The lender accepts your loan modification request and you can begin taking advantage of the more affordable monthly mortgage payments.
You’re granted a trial modification. The lender asks you to complete a trial of a few months to a year to determine whether you can make the modified mortgage payments on a schedule. They may also ask you to submit documentation that proves you're able to continue making payments. If you do both successfully, the loan modification request will likely get approved.
The lender denies your request. There are two ways to receive a denial.
You may have a soft denial. If you get a soft denial, it means there are still things you can do to get a loan modification. For example, the lender may conclude that you don’t have enough income to get approved. In that case, you can look into having another party agree to sign on to the loan with you and contribute to your mortgage payments.
If you receive a hard denial, you probably can’t get a loan modification. Hard denials happen when there’s a concrete rule or requirement that’s challenging to overcome. For instance, you've surpassed the number of modifications allowed over the life of the mortgage.
What To Do After a Denial
If you believe that your loan modification should have been accepted, the first thing you’ll want to do is prepare a qualified written request (QWR). This is where you’ll ask the lender for information about why they denied the modification. The law requires the lender to respond within a set time period, often 30 to 45 days. If they don’t, they could be subject to legal penalties, including legal fees.
Once you receive the lender’s response to your QWR, you can decide what to do next. Potential avenues to consider include:
Appealing the loan modification denial.
Submitting a complaint to a state or federal government agency.
Filing for Chapter 13 bankruptcy. If you want to keep your home, you should see if a loss mitigation program is available to you. This may allow you to keep your home as a part of the Chapter 13 repayment plan.
If you’re a homeowner who’s experiencing financial difficulties, a loan modification may help you keep your home. But not just anyone can modify their loan. You’ll need to satisfy your lender’s conditions and requirements. This is why some people decide to hire a loan modification lawyer to assist in this process. Their legal expertise can also come in handy if the lender isn’t being fair during the loan modification process. A lawyer can also request to modify your loan as part of another legal proceeding, like bankruptcy or judicial foreclosure.