Loan Modification Guidelines

If the monthly mortgage payments are higher than 31% of the income, the lender will begin lowering the interest rate by 0.125% until they reach a rate that will put the mortgage payments at the right percentage or until the interest rate is reduced to 2%. The lender will not lower the interest rate below 2%.

The goal is to modify the terms of a loan so that monthly payments are no more than 31% of a person’s gross monthly income. When an eligible homeowner is determined to be at risk of falling behind on payments or facing foreclosure, lenders have a clear set of guidelines to follow. This set of guidelines is known as the Standard Waterfall. In the Standard Waterfall, here are the steps lenders will follow:

Besides these standard guidelines, several financial institutions also have their own guidelines, however each lender and bank differ. Also depending on the lender themselves is the acceptable credit score of the homeowner. Some lenders turn away homeowners seeking loan modifications due to lower-than-average credit, while other lenders accept them depending on their situation. Generally a lender’s loan modification guidelines can be found on their website with little to no difficulty, but if it is unavailable, a homeowner should give their lender a call.

The guidelines are standard for everyone, and under the federal plan lenders and servicers will be paid to modify qualified loans using a set formula. The goal is to achieve a new payment that equals just 31% of the household gross monthly income. That figure includes the principal and interest, property taxes, homeowners insurance and any homeowners dues, if applicable. The new mortgage payment will be arrived at by using a sequence of options, in this order:

In any case, make sure that you give as precise and verifiable information to your loan modification attorney so loan modification servicers discuss with the lenders to get the best possible rate for the loan.