Qualifications for Mortgage Modification

A mortgage modification may be a last-ditch effort for a number of homeowners, who have fallen on hard times and fear a future foreclosure. Qualifications for mortgage modification were implemented by the Treasury Department to serve as general guidelines to participating banks, and they represent a minimum standard these financial institutions must follow when working with debtors. Banks may have their own guidelines as well, making it more complicated for homeowners to participate in the planned stabilization of the housing market.

History

The current set of qualifications for mortgage modifications dates back to the Homeowner Affordability and Stability Plan, signed in February of 2009 by President Barack Obama. A copy of the executive summary is referenced in the Resources section.

Time Frame

The program began in February 2009, backed with $75 billion in federal funding.

Function

Banks participating in the president's mortgage modification program set forth a list of qualifications you must meet. The goal is to separate the responsible homeowner -- who may have fallen on hard times -- from the homeowner unlikely to be able to make payments, even after signing a modification deal.

Effects

The Obama Administration estimates that the Homeowner Affordability and Stability Plan will assist upward of seven to nine million homeowners, who are facing tough economic times and are struggling to hold on to their homes. The qualifications for mortgage modification open the doors to loan restructuring or even refinancing, so that monthly house payments drop and become affordable.

Identification

Qualifications for mortgage modification help identify eligible homeowners. According to the government's Making Home Affordable program, a homeowner may only apply for a loan modification on a primary residence with a mortgage of less than $729,750. In addition, the mortgage needs to have been written before Jan. 1, 2009 and must currently demand a payment that is more than 31 percent of the borrower's gross income. You may include your property taxes and homeowner's insurance in the payment total, which is oftentimes already the case for borrowers with an impound account.

Misconceptions

It is a common misconception that any consumer meeting the qualifications for mortgage modification will be issued one. Keep in mind that this is a voluntary program that not all banks participate in, although Fannie Mae and Freddie Mac were directed to allow modifications on all of the loans they hold or have backed. Banks that do participate in the plan still have certain credit guidelines they set. For example, if you are a borrower with negative cash flow on a monthly basis, you may not be offered a home loan modification simply because your debt-to-income ratio makes it unlikely that you will meet your financial obligations.

Additional Qualifications

In order to qualify for a modification, your house must be your primary residence and you can't have been convicted in the last 10 years of a felony involving larceny, theft, fraud or forgery, money laundering or tax evasion in connection with a mortgage or real estate transaction. You must also be able to establish your ability to make the modified mortgage's payments.