CONS:  This part is very easy: I honestly can’t think of any.

PROS:  There are some very strong pros for a modification.

Let’s start with what exactly is a modification?  A modification is a permanent change in the terms of a mortgage, which is usually facilitated by the loss mitigation department of a lender or servicer when a borrower has fallen behind (or expects to fall behind) on their mortgage payments.  The modification of mortgages is a big part of the current stimulus package being promoted by the Administration as a way to help folks get back on their feet. Almost everything about a modification is a pro—including how one is handled. The modification will be handled by the current servicer and does not require a new appraisal.  There is no closing, so consequently, no closing fee will be charged.

The only reason to request a modification is to improve your current mortgage situation and the lender is not likely to grant one unless there is the realistic expectation that you will be better prepared to meet the mortgage obligation in the future. (Modifications in the past have not been carefully structured and have, unfortunately, resulted in a re-default within a short period of time.  Current guidelines are likely to minimize that being a frequent occurrence).

With a modification, the:

a. interest rate may be decreased
b. rate will most likely be converted to a fixed rate rather than a variable
c. the loan term can be modified and stretched out to allow a longer repayment period
d. the balance on the loan can be adjusted if it is determined that the outstanding balance exceeds the existing value of the home
e. a combination of the above things can be done in order to reach a reasonable payment based on the financial situation of the borrower

Lenders or servicers will be paid a fee to process a modification.  You, the borrower, should expect to provide documentation of your finances and prove you have the ability to sustain the new proposed payment.

It’s a great day when the PROS so clearly outweigh the CONS. 

**Scam Alert:  Be careful of services which offer to help you facilitate a modification.  You should not provide money up front for this service, nor is it necessary to sign a power of attorney or give over the deed to your home in order to get this done.  It is possible without legal help.  If you feel you need professional help, then by all means engage someone but be sure you understand the contract terms before you sign. Most importantly, NO ONE CAN GUARANTEE THAT A LENDER WILL MODIFY YOUR LOAN.   They are lying if they say they can.  You may request a modification;  they are not automatic and cannot be demanded. 

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The answer is good, but not great.  Often the servicer does impose a charge for doing the modification, and you should not be afraid of this.  The servicer is acting with ostensible authority from the actual lender [often a pool], so the language in the modification should reflect that there is consent, as you dont want to have a change on servicers and a repudiation of the modification.  It should be in recordable form, but that depends on state law, and you might want to consult a lawyer about subordination issues.  Individuals can do this, but the guiding hand of a professional is often worth the expense. 

Finally, there are a huge number of fakes out there, like the debt settlement companies of a decade ago.  I imagine the FTC will get around to stomping on them about the time the crisis has passed. 

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