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Bankruptcy A-Z – L is for Loan Modification?

by Dorota Trzeciecka on January 3rd, 2010

Loan modification involves permanent change in the terms of the loan that generally results in a lower monthly mortgage payment for the borrower.  The change comes in the form of the reduction in the interest rate, change in the monthly payment amount, extension of the term of the loan, or a combination of all three.

For the borrower who is in foreclosure and behind on his or her payments, the past due amounts, together with interest and penalties, may be added to the loan balance and paid at the end of the mortgage term, either over additional time or as a balloon payment.

Under the currently available Obama Home Affordable Modification Program (“HAMP”), the monthly payment is reduced to 31% of the borrower’s monthly gross income.  The reduction is introduced on a temporary basis but is made permanent after the borrower makes three on-time payments. Why would lenders go for it?  The Obama administration is offering up thousands of dollars in incentive payments not only to lenders but to homeowners and mortgage investors as well.

To qualify for the HAMP, you must:

  1. Occupy your home as a primary residence;
  2. have a monthly mortgage payment that is greater than 31% of your gross monthly income;
  3. have a loan amount that is not greater than $729,750–the current Fannie Mae and Freddie Mac loan limits; and
  4. be unable to afford your current payment.

And as an added incentive, homeowners who pay their modified loan payments on time for five years may be eligible for a $5,000 credit applied to reduce principal debt on their first mortgage.

For more information about loan modifications, please contact Dorota Trzeciecka at

If you’d like to learn more about bankruptcy terms beginning with an L, follow these links:

The Mortgage Industry: The Big Lie


Lien Stripping

Lift the Stay


Long Term Payments, Chapter 13 Plan


Lien Stripping

List It or Lose It

Life Insurance

Listing Debts and Assets In Bankruptcy


Limits of Bankruptcy


Lien Avoidance


From → Foreclosure

  • Stephen Brittain, Esq.

    This is a very informative article. Thanks for the information.

    Stephen Brittain, Esq.
    Santa Ana, CA 92701

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  • Thank you for the information. I have been trying to avoid foreclosure and this helps me greatly to put things in perspective

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