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Bank Criteria for Loan Modification

Bank criteria for loan modification will differ from lender to lender.  A loan modification is an agreement between borrower and lender to change the terms of an original mortgage contract in an effort to lower monthly payments for the borrower while continuing to make a profit for the lender.  Since the process involves the terms of a contract that was created and agreed to by the borrowers of a specific lender, the lender will retain the right to establish their individual requirements to be met before a modification can be approved.

In the case of receiving assistance under the government sponsored Home Affordable Modification Program (HAMP), the rules are a bit different.  HAMP was created by the Obama administration to help struggling homeowners avoid foreclosure.  The program forces any lender issuing loans backed by Fannie Mae and Freddie Mac to approve modification requests from borrowers who meet federally established guidelines.  The government is able to place this kind of pressure on the lenders because Fannie Mae and Freddie Mac are currently under government control. 

Bank criteria for loan modification under HAMP are blanket criteria which every lender who participates in the program must adhere to.  The program reaches across institutional boundaries in a way that makes access to the program as easy as possible.  In fact, any borrower can apply for a HAMP facilitated loan modification through any lender that participates in the program.  For example, borrowers of any Bank of America branch can pick up a HAMP application at any Wachovia Bank branch since both institutions are HAMP participants.  Government established requirements include: the home with the loan to be modified must be the primary residence of the borrower, no more than $729,750 can be owed on the first mortgage, the borrower must have verifiable trouble paying their minimum monthly payments, the loan must have been issued before 1 January 2009, and the monthly payment for the mortgage in question must be an amount greater than 31% of the borrower’s gross income.

When a person applies for a loan modification through their lender they should specify whether they want to be considered for an “in-house” loan modification or for a loan modification under the provisions of HAMP.  Depending on the needs of the borrower, one option may be better than the other.  For example, if a person owes more than $729,750 on their loan, an in-house option negotiated directly with the lender without the intervention of the government may be the borrower’s only option.  Some lenders will have more attractive and more helpful options than others and offer a blanket description of bank criteria for loan modification would take too long for this brief article.       

Borrowers who can’t or don’t want to attempt to qualify for a loan modification under HAMP should contact their lender directly to find out exactly what their requirements for modification are.  If it appears that both a bank offered loan modification and a HAMP offered loan modification are out of the question, the borrower should consult with a local real estate or foreclosure attorney for more guidance and information on options.