A loan modification is a change to a borrower’s loan terms. This change reinstates the loan and results in more affordable monthly payments. It can also prevent the borrower from losing his or her home provided payments are made on a timely basis.
According to the U.S. Department of Housing and Urban Development, loan modifications may include legal fees as well as related foreclosure costs for completed work. Additionally, HUD says that accrued late charges should be waived upon completion of a loan modification.
Video: Loan Modification Can Save Your Home
Who Qualifies?
LoanWorkout.org offers an analysis of which borrowers may qualify for a loan modification. The site says that essentially lenders are most likely to grant you a modification if they are confident that you can afford the new payments.
In order to qualify for a loan modification, a borrower must meet three main conditions:
There must be a hardship preventing the borrower from making his or her current mortgage payments or payments that will increase due to adjustments in interest rates. Typically this involves a decrease in income or an increase in expenses.
Not enough equity remains to sell the home and pay off the mortgage without incurring a short sale, or a request to the lender to accept less than the amount owed.
The borrower must be able to document that he or she will be able to make the proposed payment.
Loan modifications are decided on a case-by-case basis, so the more you can document your ability to make the modified payments; the more likely are you to get approved.
What Are the Steps Involved?
LoanSafe.org has a detailed breakdown of the loan modification process. When applying for a modification, the site says, gather all items necessary to document your income and expenses. This includes your last four pay stubs, at least three years’ worth of tax information, and the last three to six months of bank statements. Additionally, find all your mortgage paperwork and have it close at hand.
Then call your lender. You’ll first talk to the collections department, then to the loss mitigation specialists. While the first group will try to get you to continue paying on your current mortgage agreement, it is the second group that is in the best position to help you. They will then begin the process by collecting information to be considered by the lender. Ultimately you will be notified as to whether you’ve been approved for a loan modification.
Video: Fighting Foreclosure
What Are the Savings and Costs?
Aside from the obvious benefit of keeping your home, a loan modification can lower your monthly payments. Though fees vary by financial institution, Realty Times estimates that a $4,000 loan modification can lower your monthly payments by $150, which can pay for itself in just over two years.
Consumer advocates warn homeowners not to pay upfront fees for loan modifications, so be sure to do your homework before handing over any money. Visit the Federal Loan Modification Bureau for more information.
Here is a list of 10 loan modification organizations:
Federal Housing Authority
Fannie Mae: (800) 7FANNIE
IndyMac Bank: (800) 781-7399
HOPE NOW: (888) 995-HOPE
Citigroup: (800) MORTGAGE, press Option 4
Feldman Law Center: (800) 527-8497
Bank of America-Countrywide: (800) 669-6607
Wells Fargo: (800) 678-7986
American Loan and Mitigation Specialists: (866) 700-2567
JP Morgan Chase: (866) 550-5705
There must be a hardship preventing the borrower from making his or her current mortgage payments or payments that will increase due to adjustments in interest rates. Typically this involves a decrease in income or an increase in expenses. 
