Mortgage Modification

Definition of 'Mortgage Modification'


A permanent change in a homeowner’s home loan terms that makes the monthly loan payments affordable. The goal of mortgage modification is to prevent foreclosure. Mortgage modification can benefit homeowners by preventing them from losing their home and can benefit lenders by avoiding  the costly foreclosure process.

Investopedia explains 'Mortgage Modification'


To apply for a mortgage modification, a homeowner must complete an application package documenting income, assets, expenses and financial hardship.

The biggest mortgage modification program in the United States is the Home Affordable Refinance Program, created in 2009 by the federal government in response to the nation's housing crisis. This program helps homeowners who are struggling to pay their Freddie Mac or Fannie Mae-backed mortgage apply for mortgage modification with their loan servicer. These are borrowers who cannot do a traditional refinance to improve their loan terms because their home value has declined below the mortgage balance.

A similar program called the Home Affordable Modification Program helps borrowers with Federal Housing Administration-backed mortgages. Borrowers can also apply for a mortgage modification outside these federal programs. A nonprofit housing counselor can help with the process.

While a mortgage modification generally means less income for the bank because of a reduction in the mortgage’s principal amount, interest rate or both, this loss may be less than what the bank would experience by foreclosing on the borrower and reselling the property. Mortgage modification can turn a less-than-ideal situation into a win-win.

Still, foreclosure was much more common than mortgage modification during the housing crisis because banks claimed they lacked the resources to handle the large number of modification requests. This meant many homeowners who probably would have qualified for mortgage modification were not able to get into a modification program and, instead, lost their homes to foreclosure. 



comments powered by Disqus
Hot Definitions
  1. Marginal Analysis

    An examination of the additional benefits of an activity compared to the additional costs of that activity. Companies use marginal analysis as a decision-making tool to help them maximize their profits. Individuals unconsciously use marginal analysis to make a host of everyday decisions. Marginal analysis is also widely used in microeconomics when analyzing how a complex system is affected by marginal manipulation of its comprising variables.
  2. Treasury Inflation Protected Securities - TIPS

    A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed.
  3. Gilt-Edged Switching

    The selling and repurchasing of certain high-grade stocks or bonds to capture profits. Gilt-edged switching involves gilt-edged security, which can be high-grade stock or bond issued by a financially stable company such as the Blue Chip companies or by certain governments.
  4. Master Limited Partnership - MLP

    A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP's cash flow, whereas the general partner is the party responsible for managing the MLP's affairs and receives compensation that is linked to the performance of the venture.
  5. Class Action

    An action where an individual represents a group in a court claim. The judgment from the suit is for all the members of the group (class).
  6. Retail Sales

    An aggregated measure of the sales of retail goods over a stated time period, typically based on a data sampling that is extrapolated to model an entire country. In the U.S., the retail sales report is a monthly economic indicator compiled and released by the Census Bureau and the Department of Commerce.
Trading Center