Mortgage modification is a process where the terms of a

mortgage A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any ...

are modified outside the original terms of the contract agreed to by the lender and borrower (i.e.

mortgagee A mortgage is a legal instrument of the common law which is used to create a security interest in real property held by a lender as a security for a debt, usually a mortgage loan. ''Hypothec'' is the corresponding term in civil law jurisdicti ...

and mortgagor in mortgage states;

Trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to ...

and Trustor in Trust Deed states). In general, any

loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that ...

can be modified, and the process is referred to as loan modification or debt rescheduling.

Background

In the normal progression of a mortgage, payments are made according to the loan documents until the mortgage is paid in full (or paid off). The lender holds a

lien A lien ( or ) is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the ''lienee'' and the per ...

on the property, and if the borrower sells the property before the mortgage is paid-off, the unpaid balance of the mortgage is paid to the lender to release the lien. Any change to the mortgage terms is a modification. Changes may include any of the following: a reduction of the yield (commonly referred to as the interest rate), an extension of the payment term (ex. extending a 30-year term to a 40-year term), or a reduction of the principal balance of the loan.

In the United States

Following the 2007 real estate recession, the government mandated the program,

Making Home Affordable The Making Home Affordable program of the United States Treasury was launched in 2009 as part of the Troubled Asset Relief Program. The main activity under MHA is the Home Affordable Modification Program. Other programs under MHA include: * Princ ...

(MHA), and its loan modification aspect, Home Affordable Modification Program (HAMP) became the answer for both the struggling borrower and the lender. The lender is motivated to offer modification under this Program by the expectation that a loan in default will become a performing (current) loan which will be more valuable than the proceeds obtained from a foreclosure sale, along with receipt of financial incentives from the government. The borrower, on the other hand, receives a fixed interest rate, a lower loan payment, often an extended term, and sometimes a principal reduction (if the property is upside down).

In Canada

The emergency loan-modification options give homeowners the potential to extend amortization periods on their homes if experiencing significant financial hardship or even when they’re facing foreclosure. These options can offer extensions up to a 40-year amortization, if a 15 year extension is granted on a previous 25-year amortization mortgage.

References

External links

MakingHomeAffordable.govHardest Hit Fund
{{DEFAULTSORT:Mortgage Modification Loans Mortgage Personal finance Valuation (finance)

Background

In the United States

In Canada

See also

References

External links