Traditional Loan Modification

A traditional loan modification is your next best option if you don't qualify for HAMP.  This type of loan modification is basically one where your bank sets the requirements based on their own guidelines.




Some banks tailor their traditional loan modification standards according to HAMP guidelines, but most take it as an opportunity to set their own rules as they see fit.  

Requirements vary from one lender to another, so if you decide you're going to hire a professional to help you, it is very important that you go with a loan modification company who has experience with your bank.  You must ask them for examples of successful mortgage modifications that they've done with your particular bank, and if possible, one with the same situation as yours.

Although each bank has their their individual set of requirements, here are some that are common among most of them.

Traditional Loan Modification Guidelines

  1. Late on Mortgage Payments - This is one that has been a little controversial.  It is NOT a requirement to be late on your mortgage loan payments, HOWEVER, in my interviews with loan modification companies, I've been told that in their experience, banks will not give you immediate attention, or may be apt to deny your request if you are not late on your payments. You are frankly not seen as a priority especially since there are literally hundreds of thousands of applicants who are already in default and are at the brink of foreclosure.  Your loan modification package will be received and your file created, but it is not perceived as priority.  Let's put it this way, if you are still able to make your mortgage payments, you are not seen in the same light as those who have already stopped making payments and are already in the beginning stages of foreclosure.  Those cases are in the bank's "non-performing assets" category and are the ones they will work on first so they can put them back on the "performing assets" category.
  2. Hardship - Just as you would with a HAMP modification, you must be able to document a hardship situation which has caused you to no longer be able to afford your current mortgage loan payments.  This includes a medical condition preventing you from working, job loss, paycut, interest rate adjusting higher, or unfortunately, a death in the family.
  3. Verifiable Income - Traditional loan modifications take into consideration both gross and net incomes to determine whether, at your current level of income, you can afford the new lower interest rate and/or longer loan term (40 years instead of 30 years) that your bank decides to offer you if they approve your request.  You must be able to prove your income through paystubs, w2's, tax returns, and profit and loss statements if you are self-employed.  Just as with a HAMP modification, you will be required to sign a Form 4506-T, which will allow your bank to order your tax returns to verify your income.
  4. Type of Property - Under a traditional loan modification, you may apply for your primary residence and/or investment property.  You can apply for any type of property as long as your request makes financial sense for the bank.  In other words, if the bank feels they'd lose more money if they foreclose on your property, they would rather modify your loan instead -- as long as you can prove to them that you would be able to keep up the new payment arrangement.  

Have any questions about Traditional Loan Modifications?

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    HAMP Loan Modifications

    Mortgage Loan Modification Basics

    Loan Modification Success Stories and Actual Loan Modification Agreements

    No Upfront Fee Loan Modification

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