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Did you know there is a federal rule that prevents banks from pursuing foreclosure while a homeowner’s mortgage is under review for modification? If you’re worried about foreclosure, you can save your home with a mortgage loan modification.

Dual tracking is a process wherein your mortgage company continues foreclosure while simultaneously considering a mortgage loan modification. This was a common banking procedure in the past, but in 2014, federal law protects homeowners from dual tracking.

What Is Loan Modification?

A mortgage loan modification is a permanent restructuring of your mortgage. You and your lender agree to change one or more terms of your original mortgage to provide a more affordable payment.

There are a few terms that can change:

  • A reduced interest rate
  • Change a variable interest rate to a fixed rate
  • Extension of the loan term length

Any of these terms can mean big savings to a distressed homeowner. In addition to these changes in terms, your mortgage servicer may offer other options to reduce your payment to help you save your home.

Who’s Eligible For Mortgage Loan Modification?

Banks have different criteria and you must talk to them personally to find out if you qualify. Generally speaking, you qualify if you demonstrate that you are unable to make your current mortgage payment due to financial hardship. You will need to provide documentation to prove your hardship and you’ll also have to prove that you can afford the new terms of the mortgage.

You can prove financial hardship by demonstrating various conditions, such as:

  • Changes in your income, such as changes in your job or losing a job
  • Death of a spouse or divorce
  • Injury or illness
  • An emergency
  • Natural disaster
  • Payment shock, such as when a variable interest rate increases
  • Legal issues

Just as borrowers are unique, every distressed mortgage is unique. Talk to your lender about your financial situation to see what they can do to help you modify your mortgage.

What You Will Need For Loan Modification

Required documentation for a mortgage loan modification includes:

  • Proof of income, such as pay stubs
  • A financial statement
  • Recent tax returns
  • Bank statements
  • A hardship statement

A hardship statement is simply a statement by you that explains why you’re asking for loan modification and what you would like from them. You should be honest and describe the reason(s) you can not afford to keep your mortgage obligation. Give specific examples such as losing a job or going through a divorce. Tell the lender that you want to keep your home and that you want to work with them to modify your loan so that you can save your home. Be realistic with your offer to bring your loan current and to make your monthly payments under new terms.

Hardship letters are important tools to help you avoid foreclosure and obtain a resolution to your debt. Your loan servicer will take your letter very seriously when reviewing your request for loan modification, so it’s worth the time you will spend to create a compelling hardship letter.

The Bottom Line

The prospect of foreclosure is frightening to most homeowners. You want to save your home, but it might be hard to admit that you can’t keep up with your current loan terms. Your lender is sensitive to your plight and they want to help you. It’s as much in their best interest for you to stay in your home as it is yours. Talk to them. Call the bank and ask for a mortgage loan specialist to find out what you can do to modify your mortgage loan and get back on track.