Negotiating Your Mortgage Modification

These days, while some people are trying hard to buy their first home, others are trying to hang on to the one they have. Because of unemployment, loss of income, adjustable mortgage resets, falling homes values, many find themselves in need of a mortgage modification to keep up with the payments.

Banks may not want to modify loan terms, but often, doing so is cheaper for them than foreclosure. President Obama's Homeowner Affordability and Stability Plan set up the Making Home Affordable Program to facilitate refinancing and modifying loans, and banks have been encouraged to get on the bandwagon and help homeowners. The program has changed since first conceived a year ago; at first, banks were encouraged to lower interest and lengthen loan terms but now they have been offered incentives to reduce principle.

If your finances are shaky and you hope to have your mortgage modified, it's important do some soul searching and then take some definite steps to make it happen. Do you really want to stay in the house? A home should give you comfort, not stress you out because it is too costly to maintain. Regardless of your answer, here are the steps to take:

• Avoid scams that promise to help but want money up front. Programs that you hear of on late night TV, on telephone poles, or from unsolicited calls or emails may not have your best interests at heart.
• Contact a HUD approved housing counselor in your area to discuss your options. Even if you need to consider an option such as short sale to avoid foreclosure, a counselor can help prepare you. If you are in trouble, there is plenty of help available in the DC area.
• Prepare an accurate picture of your finances. Your loan modification usually can get your payment to be 31% of your income or less. Will you be able to stick to that with your current income? Loan modifications have a high default rate , especially among people who agreed to terms they really could not meet.
• If you have lost your job or face another short term impediment to making your payment, work with your counselor to seek forbearance from your lender so that your payment can be postponed or even forgiven.
• If you need a long term reduction, see if your lender will accept what you can pay. You will need to make a case for why you can't pay the current amount but could pay the reduced payment. Keep in mind that 31% is the figure your lender probably has in mind.
• Make sure to ask if fees and penalties will be removed or figured in the revised loan. Damage to your credit score is likely if you either fall delinquent on your payments or have the loan terms changed, but you should ask how the lender will report the change in your payment.
• Be prepared to submit any documentation the lender requests.

Currently, modifying your loan is not a quick process, though there is pressure on banks to speed it up. In the right circumstances, loan modification can make the difference between keeping your home and losing it, so the process is worth the effort.

Looking to buy a home in the DC area? Rachel Valentino is very familiar with the DC metro area, so she can direct you to appropriate and affordable properties in the District, northern Virginia, or eastern Maryland.