What is a Mortgage Modification & How Does It Benefit You?

What is a Mortgage Modification & How Does It Benefit You?


What is a mortgage modification? Many people, thousands of them, get this done every year so it must be good, right? A mortgage modification is a permanent change in the terms of the mortgage that is given to a homeowner. Typically, a homeowner will do a mortgage modification when they want to make their monthly payments cheaper, or maybe they have to make them cheaper.  


One of the main goals of a mortgage modification is to prevent foreclosure. Either the homeowner has to do a modification to prevent foreclosure because they cannot afford the current monthly mortgage payments OR because they just want to avoid any future scares. Doing a mortgage modification can benefit the owner of the home since it helps prevent the loss of the home, getting a little more cash in their pocket, and dodging the expensive foreclosure process.


To apply for a mortgage modification, the owner of the home has to fill-out an application that will document information such as their income, all the assets, expenses, and any financial hardships.


There are many modification programs available but one of the biggest in the country is the Home Affordable Refinance Program (HARP). The program was launched in 2009 by the US government in response to the national housing crisis. Those who have Fannie or Freddie backed mortgages are able to benefit from this program; these people are able to apply for a refinance through their mortgage servicer. Why can they benefit from the HARP? Well, these homeowners are not able to do a traditional refi to better their mortgage terms due to their home's declined value that has left them underwater.


There is another program that functions like the HARP called the Home Affordable Modification Program. This helps borrowers with mortgages backed by the Federal Housing Administration, or FHA. Both groups of people are still able to apply for refis.


A mortgage modification often results in less income for a bank since the modification is reducing the principal, the mortgage interest rate, or perhaps both. This is still a better deal for the bank than letting a house go into foreclosure and then having to put the property back up for sale. Both parties win with a modification.


Despite the win of a modification, foreclosures are still very common; during the housing crisis, they were more common than modifications. Many people during this time were not able to modify and instead lost their homes. 


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