Loan modifcation is a very real option for the many people who are currently facing difficulties meeting repayments. Getting a home loan restructured can save you from a situation where you may be forced to sell or even worse the banks may foreclose on your property.

In the normal progression of a mortgage, payments of interest and principal are made until the mortgage is paid in full (or paid-off). Under normal circumstances until the mortgage is paid, the lender holds a lien on the property and if the borrower sells the property before the mortgage is paid-off, the unpaid balance of the mortgage is remitted to the lender to release the lien. Generally speaking, any change to the mortgage terms is a modification, but as the term is used it refers a change in terms based upon either the specific inability of the borrower to remain current on payments as stated in the mortgage, or more generally government mandate to lenders.

Residential mortgage credit quality continues to weaken, with both delinquencies and charge-offs on the rise at FDIC-insured institutions.

This trend, in tandem with upward pricing of hybrid adjustable-rate mortgage (ARM) loans, falling home prices, and fewer refinancing options, underscores the urgency of finding a workable solution to current problems in the sub-prime mortgage market. legislators, regulators, bankers, mortgage servicers, and consumer groups have been debating the merits of strategies that may help preserve home ownership, minimize foreclosures, and restore some stability to local housing markets

Under the financial rescue package, the Treasury plans to directly inject $250 billion of capital into U.S. banks in exchange for preferred shares. Nine of the largest U.S. banks were essentially arm-twisted into signing on for the first $125 billion in capital infusions.

The Mortgage Loan Modification process provides for either a permanent change in one or more of the terms of a mortgagor’s loan, which allows a loan to be reinstated if the loan is behind or past due and results in a payment the mortgagor can afford.

Lenders will need to collect all of the following documentation.

Cover letter, stating what’s in the submission package
Client Authorization Form, signed by all borrowers, one for each different lender (if more than one)
IRS Form 4506 – T, Request for Transcript of Tax Return, one for each borrower
Two months’ worth of paystubs, all borrowers
The last two years’ tax returns, all borrowers
Year-to-date Profit and Loss statements for each business owned (self-employed and entrepreneur borrowers only)
Hardship letter
Schedule of Real Estate Owned, especially if they own more than one home
1003 Loan Application
Recent appraisal or county property value assessment
Copy of personal budget for all borrowers, including everything from debt payments to utility bills, from the monthly food budget to gym membership dues, and everything else the client’s spends money on.