From the vantage point of 2011, many mortgages that were good deals in 2003 are not so attractive now. One way that borrowers can change their plight is with loan modifications. A loan modification is essentially changing the terms of the original deal. These come in a variety of ways including: payment term extension, principal reduction, interest rate fixing, and interest rate calculation modification etc.
The borrower can be in good standing, behind on payments, default, or even foreclosure when the modifications are made. The primary goal of the lender is always to make back the money that is owed to them. Therefore, modifications like principal reduction (the bank reduces the amount owed on the home) is much more difficult to get than a term extension. One of the more common modifications is to stretch the life of the loan out to 40 years. This is beneficial to both parties because it reduces the monthly mortgage payment for the borrower, and the lender doesn’t generally lose money.
Qualifying for a mortgage modification is dependant on the lender and what it is willing to do to prevent foreclosures. Each lender is looking for the “Goldielocks” candidate, meaning that the borrower has to earn enough to convince the bank that they can actually pay the debt if it’s modified, and at the same time not earn so much that the bank believes that the borrower can/should continue to pay the original terms. Borrowers interested in a modification should contact their individual lenders or an attorney that specializes in financial affairs.