The credit crisis of 2008 increased the likelihood of American mortgage modifications. Following the crisis, as more consumers descended into foreclosure and default, lenders with and without the support of the federal government began offering reductions to term, interest rate and payment on mortgages for their consumers. The most crucial component of a loan modification is completing the Financial Worksheet.
Contact your mortgage or loan lender. While not all mortgage and lenders offer modifications, you must acquire a modification under the auspices of your original lender, not the government.
Calculate your mortgage Debt to Income Ratio (DIR). While modifications are handled exclusively by lenders, there is a federal mortgage DIR target cap of 31 percent. Divide your monthly mortgage payment (including all taxes, insurance, homeowner's association fees) by your gross monthly income.
Obtain the financial worksheet from your lender. This is usually between one and five pages long. It will always contain sections for: personal information (name, address, social security number), income information, and asset information.
Begin filling in the necessary sections. It's best to make a photocopy of the document first, and complete a rough draft to make sure all the figures are accurate.
Fill in the hardship information, if available. This is a critical component of the worksheet—it essentially gives the lender or loan modification representative a human explanation for the reason for a modification. This can be an illness, job loss or disability.
Review the entire worksheet before handing it back to the lender. You should also have trusted adviser, such as an accountant, look it over. This document will ultimately end up determining your eligibility for a loan modification.
References
- MerchantCircle: Loan Modification Department
- Consumer Financial Protection Bureau. "What Is a Mortgage Loan Modification?" Accessed Feb. 13, 2020.
- USA.gov. "Foreclosure." Accessed Feb. 13, 2020.
- Experian. "What Is Wage Garnishment?" Accessed Feb. 13, 2020.
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- U.S. Department of Agriculture Rural Development. "Chapter 10: Credit Analysis," Page 34. Accessed Feb. 13, 2020.
- Experian. "Loan Modification and Credit Scores." Accessed Feb. 13, 2020.
- Internal Revenue Service. "Topic No. 431 Canceled Debt – Is It Taxable or Not?" Accessed Feb. 13, 2020.
- Consumer Financial Protection Bureau. "What Is the Difference Between a Fixed-Rate and Adjustable-Rate Mortgage (ARM) Loan?" Accessed Feb. 13, 2020.
- Urban Institute. "Government Loan Modifications." Accessed Feb. 13, 2020.
- Federal Housing Finance Agency. "Fannie Mae and Freddie Mac Total Refinance Volume Increases in March as Interest Rates Fall." Accessed Feb. 13, 2020.
- Freddie Mac. "Enhanced Relief Refinance Mortgage." Accessed Feb. 13, 2020.
- Internal Revenue Service. "About Form 4506-T, Request for Transcript of Tax Return." Accessed Feb. 13, 2020.
- Consumer Financial Protection Bureau. "Help For Struggling Borrowers: A Guide to the Mortgage Servicing Rules Effective on January 10, 2014," Page 36. Accessed Feb. 13, 2020.
- Experian. "Bankruptcy: Chapter 7 vs. Chapter 13." Accessed Feb. 13, 2020.
- Federal Trade Commission. "Mortgage Relief Scams." Accessed Feb. 13, 2020.
Writer Bio
Based in Eugene, Ore., Duncan Jenkins has been writing finance-related articles since 2008. His specialties include personal finance advice, mortgage/equity loans and credit management. Jenkins obtained his bachelor's degree in English from Clark University.