Mortgage modifications may be option if facing foreclosure

Foreclosure — the word sends chills and worries through the air as many homeowners are juggling rising household expenses, including the mortgage payment, with a downturn in the economy.

Instead of losing a home to foreclosure, there is now an alternative called mortgage modification. Not a refinancing, mortgage modification can help in cases where a homeowner may be facing foreclosure due to a personal hardship, an adjustable rate mortgage or because they are behind on payments.

Guy Jones of Integra Lending Group said many times a lender will be open to modifying, or changing, the conditions of a loan because it costs less than the cost of a default. The foreclosure would have property going on the market in a particularly “soft” selling season, not a great option for the mortgage company, he said.

Some changes that can be made by mortgage modification include changing from an adjustable rate mortgage to a fixed rate mortgage; extending the length of the mortgage to bring down the amount of the payments; or even reducing the interest rate on the loan, which will bring down the amount of the payment each month. A mortgage modification can even get homeowners caught up on payments if they are behind.

Most importantly, it can keep a homeowner from going to foreclosure, Jones said.

The cost of the mortgage modification service varies with the price of the mortgage but averages about $3,000 on a $250,000 mortgage. It may be lower or higher, but Jones said the main reason to pay the flat fee is it can lend to a change that will make life easier and the mortgage more affordable in the long run.

If you are truly facing foreclosure, the cost of rent each month may be as much or more than the mortgage payment would be if modified. Even if a homeowner doesn’t have enough equity to refinance their current mortgage, they may still be able to have the interest rate lowered through mortgage modification, Jones said.

According to Integra, the parameters that determine if a homeowner is a candidate for modification include a desire to retain ownership of the property; having a source of stable income; and a hardship or the anticipation of a hardship that will affect the homeowner’s ability to repay a loan.

Some of the circumstances experienced are falling behind on payments due to a medical problem, adjustable rate mortgages that go up and the resulting payment is too high for the homeowner to pay and the falling behind on payments due to adjustable rate mortgages.

Jones said the concept of mortgage modification is new and requires the assistance of attorneys who specialize in mitigation real estate.

While some homeowners have tried to mediate their own mortgage modification, Jones said having someone else working on your behalf can be more effective because they have the expertise and knowledge to make the changes beneficial for all parties.