How do I modify my loan?
Homeowners seeking loan modifications have two choices: using the Federal Home Affordable Modification Program (HAMP), or pursuing a proprietary modification directly through your servicer or lender. Begin by checking the criteria required for a HAMP modification because your servicer will first consider you for a HAMP modification before a proprietary one. You should also check to see if your servicer is part of the National Mortgage Settlement because it includes specific provisions for loan modifications and refinances as part of the settlement.
What is a HAMP modification?
The federal government offers the Home Affordable Modification Program (HAMP) which allows eligible homeowners to modify their loans. Certain criteria must be met, and some modifications may reduce principal or modify the terms of your loan, for example, the length of repayment. Modifications are not always permanent, may include a trial period, and may not be approved on a permanent basis after a trial period. Make sure you understand the terms of your potential modification completely.
What is a principal reduction?
Principal reduction can be part of a loan modification, however it is not a guaranteed effect of any loan modification. Principal reduction means that part of the principal (amount you owe the bank separate from your interest rate) is reduced or forgiven. You should also check to see if your servicer is part of the National Mortgage Settlement because it includes specific provisions for principal reductions.