What Are My Options For A Mortgage Modification?

Are you struggling to make your mortgage payments? Perhaps financial hardship is putting you in a challenging position? Mortgage modifications allow for a little bit of breathing room by changing the original terms of a mortgage loan. If you’re wondering how to renegotiate a mortgage in Florida, this comprehensive guide covers everything you need to know about your options for a mortgage modification.

What Is a Mortgage Modification?

When facing foreclosure or long-term financial hardship, a mortgage modification can be a saving grace. A loan modification changes an existing mortgage so it’s easier for the borrower to keep up with their payments. Most lenders would prefer to modify loans inasmuch as foreclosures take time and are costly.

The process of a mortgage modification involves making changes to an existing mortgage agreement so that it’s easier for homeowners to keep up with payments. These changes typically include a new interest rate or a revised repayment schedule.

A mortgage modification differs from refinancing, which pays off a current mortgage and replaces it with a new one. When approved by their lender, a modification helps homeowners avoid foreclosure by changing their loan terms and/or lowering their interest rate.

Types of Mortgage Modifications

There are different types of mortgage modifications that are determined by the original mortgage agreement. Understanding these types can help you determine which approach best fits your situation.

Standard vs. Streamline Modifications

There are two common loan modification types:

1. Standard: This modification requires underwriting from the lender or servicers to determine repayment. This will require submitting proof of income and other financial documents such as bank statements.
2. Streamline: When a borrower doesn’t provide these financial documents, a lender may only provide changes to the monthly payment terms.

A loan modification attorney can help you understand the terms of your modification including what the payment amount will be and if the changes are only temporary or permanent.

Modify the Type of Loan

One of the most common ways to modify a loan includes changing the type of loan. For example, change from an adjustable-rate mortgage, which has a variable interest rate that changes periodically, to a fixed-rate mortgage that charges a set, regular interest rate.

Extending the Term of the Mortgage

Lengthening the term of the mortgage is another way to alleviate the stress of making tight financial payments. For example, a 20-year loan term can be extended to 30 years, in turn decreasing the monthly payments.

Reducing the Interest Rate

There may be the option to lower the interest rate of the loan, thereby lowering the total monthly payments.

Adding Past-Due Amounts to Principal Balance

Another way to modify a mortgage payment is to add any past due amounts to the unpaid principal balance. Adding these amounts, such as interest and escrow, helps to re-amortize the loan over the new terms.

Who Is Eligible for a Mortgage Modification?

No one is entitled to a mortgage modification. Whether or not a mortgage can be modified is between the lender and borrower. There are various factors that influence a mortgage modification, such as the payment amount, the length of the loan, and the interest rate. The following factors are considered when applying for a mortgage modification:

• Eligibility to refinance
• Facing a long-term financial hardship
• Falling several months behind on your mortgage payments
• Illness or disability
• Divorce or separation

When you’re having trouble paying your mortgage on time, it’s time to consider a loan modification. A professional loan modification lawyer can represent you to your lender to get the terms of your mortgage changed so it’s easier for you to stay current and not default on your loan.

Mortgage Modification vs. Refinancing vs. Forbearance

It’s important to understand the differences between a mortgage modification, refinancing, and forbearance, as each serves a different purpose depending on your financial situation.

Modification vs. Refinancing

During a loan modification, the terms of a loan are changed to avoid default or a future foreclosure. While you can change loan terms during a refinance, you also can find the best rate from multiple lenders for a new loan. Refinancing involves obtaining an entirely new loan, unlike modification. This may be difficult however, inasmuch as the homeowner may not have a sufficient credit score to enable them to obtain a new mortgage to replace the old one.

Modification vs. Forbearance

A forbearance is a temporary pause in payments for a determined period of time. This deferment of payments may be rolled over into the remaining balance or might be due as one large payment after the forbearance period ends. A mortgage modification, by contrast, permanently changes the terms of the original mortgage agreement.

Benefits of Mortgage Modifications

There are a few downsides to a mortgage modification, such as taking longer to pay off your debt or paying more interest over time. However, the process also may offer many benefits. It is all a matter of negotiation and tactic that can be employed by a knowledgeable, experienced real estate attorney.

• Resolve delinquency status with a mortgage company
• Reduce monthly payments to a manageable amount
• Permanently change the terms of the original mortgage
• Less impact on your credit score when compared to a foreclosure
• Opportunity to remain in your home

Loan Modification Programs

There are various loan modification programs that can help homeowners make payments. Some examples include:

• Conventional loan modification
• FHA loan modification
• VA loan modification
• USDA loan modification

Does a Loan Modification Hurt Your Credit Score?

Ultimately, yes it can, if the lender doesn’t report it as paid as agreed. While a forbearance won’t impact your score because the lender will continue to report your payment on time during the deferment period, a loan modification may be reported differently. However, the credit impact of a modification is still far less severe than a foreclosure on your record.

A loan modification attorney can help you to understand the terms of your loan modification, so you don’t breach any parts of the agreement.

Top Tips for Getting a Mortgage Modification

At the start of the pandemic, nearly 14% of all mortgage borrowers enrolled in forbearance programs. If you are also considering a mortgage modification, then you should consider the following tips:

• Gather all of your financial information in advance
• Be prepared to explain your current situation and financial hardship
• Compare your options of mortgage modification compared to refinance and forbearance
• Prepare a list of questions to ask a loan modification attorney

The Role of a Loan Modification Attorney

When you’re going through financial hardship, it’s time to schedule a consultation with an experienced loan modification attorney. An expert mortgage modification attorney can be a significant advantage while assessing your options. Our experienced legal team understands the paperwork involved and can represent you positively in this legal matter.

An attorney who specializes in foreclosure defense can help you navigate the modification process, understand whether the changes to your loan are temporary or permanent, and ensure you don’t breach any parts of the agreement.

Contact a Florida Loan Modification Attorney

A loan modification can be an effective solution for borrowers facing long-term financial difficulty. At Gary I. Handin, P.A., we have years of experience handling loan modifications and the various options available. Contact us for a consultation at 954-796-9600.