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. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  2. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  3. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  4. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  5. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  6. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
Trading Center