HOW IT WORKS
A mortgage modification is a negotiation with the current lender to restructure the terms of repayment. The loan was originally made on the conditions of your financial situation when you signed for your current loan. If a change to your financial situation has made the mortgage payment unaffordable modification may correct it.
The modification is generally changing the length of the loan and the interest rate. Principal balance reductions can also be considered in some cases. A loan has a principal balance, the amount left to pay off the loan. A loan may have outstanding payments that the homeowner is still responsible for. Mortgage companies will take these two figures into account. Adding the past due payments to the principal balance then structuring the term back to the original length of the loan and lowering the interest rate to fit the payment into the homeowners current budget is the goal. If the mortgage can be restructured at available terms and rates to fit the homeowners budget then the modification is a success. Homeowners can have a fresh start without having to pay past due payments right now.
Modifications are not miracles. Mathmatically it has to add up. The modified mortgage must have a high probability of repayment in a long term. Income and expenses often must be verifiable. Banks will not modify a mortgage that does not balance the homeowners budget.
Credit scores are not taken into consideration in a modification. Homeowners are not borrowing any more money. Modifications are not refinancing. There are no closing costs, property inspections or appraisals. The bank has already loaned the money and they own the house. The bank needs a new plan for how you can repay the current loan.