What is Mortgage Modification?

A loan modification mortgage means negotiation of terms and conditions in existing mortgage loan on the request of borrower. This is mutual agreed process where lender tries to secure the loan and borrower avoid the foreclosure.

Usually borrower approaches to lender due to many reasons like financial crisis, to reduce the tenor of loan or amendment in principal or interest in monthly payment. We may say that it is the need of borrower to modify the one or more terms of mortgage loan.

In mortgage loan, we know that it is long term loan and it is really very hard to complete the life of loan, customers usually refers to modification in order to adjust the loan or changes the terms and conditions. This is because, we know that US economy is facing recession phase and many individual is loosing their jobs. There is credit crunch in market, especially in mortgage market. Now borrower left no option except to contact lender to make necessary changes in his/her mortgage loan.

If we look the prospective of lenders, they are already willing for modification but only to those accounts that are expected to turn into default or foreclosure. We know that lenders earn from their lending and if their financing converted into non performing loans then it is obvious that they will forgo big part of their earnings. So, to keep the earning momentum going on, they welcome negotiation process and compromises on various terms and conditions of mortgage loans, like reducing the tenor, deferring the amount of principal for a certain period of time or to waive the amount of penalties like later payment charges etc.

Loan modification proofing best tool in reducing the ratio of non performing loans (NPLs). Now US Govt. also adopting loan modification program and its example is Federal Home Affordable Modification Program (HAMP).