Mortgage modification is a process where the terms of a mortgage are modified outside the original terms of the Mortgage Note, and are agreed to by the lender and the borrower. In general, the terms of the Mortgage Loan are restructured to try to prevent a default.
A borrower will typically request a Mortgage Modification because they are unable to make the payments as they were originally structured, and/or the property is worth less than the amount of the outstanding mortgage debt. The Modification usually results in the following benefits to the Borrower: a fixed rate, a reduced payment, and any outstanding payments may be added to the overall balance of the loan.
Lenders may agree to the Modification if they perceive that the value of the loan coming out of default and becoming a performing loan, is worth more than the cost to foreclose.
Recommended: Always ask a potential Buyer or Borrower whether the mortgage loan that they are paying off to either buy a new home OR refinance their current home, has ever been modified. If so – always request a payoff upfront from the current lender to determine exactly what is owed on that mortgage. Most credit reports don’t show the full balance of what is owed on a modified mortgage, and you don’t want to structure your deal assuming that the borrower owes less than they actually do.
Determining what the actual net sale proceeds will be for a Purchase, will directly determine the Sales Price and Loan Amount for the new home. For Refinance transactions, a Mortgage Loan Professional will need to structure the deal and select the best loan program to support the current value of the home and the amount owed.
