August 15, 2009 marked the deadline for lender implementation of the United States government mortgage loan modification program, part of Making Home Affordable. The program, designed for homeowners who are struggling to make their mortgage payments due to an interest rate increase or loss of income, has 230,000 trial modifications in process.

Reduce Your Mortgage Payments

According to the Federal Housing Administration, the program permanently reduces a family's monthly mortgage payment through the use of a partial claim, which defers the repayment of mortgage principal through an interest-free subordinate mortgage that is not due until the first mortgage is paid off.

Check loan eligibility at the Making Home Affordable government Web site or ask the lender about modifying the loan. Informational mailings went out to more than one billion individuals who might be candidates for loan modification. Many lenders require eligible borrowers to submit a "workout" package that consists of income and expense information.

What is Mortgage Loan Modification?

The idea behind loan modification is to reduce the interest rate making the payment manageable. Using the payment reduction estimating tool on the MHA Web site, if a hypothetical principle mortgage payment plus interest, insurance, taxes, and applicable homeowners association fees were $2,150 per month and the gross monthly income of the primary mortgage holder were $2,000, the new monthly payment would be $620.

The new modified interest rate can be fixed for at least five years and set increases are capped. Generally there is a loan modification trial period and any borrower that is unable to make three payments is not considered a permanent loan modification candidate. When the home is worth less than the mortgage, a lender might reduce the principle, however they are not required to.

Loan Modification Rewards

The government is rewarding borrowers who successfully make payments during the first 5 loan modified years by applying up to $5,000 toward the principle balance. Lenders are also being encouraged to approve loan modification requests for mortgages not owned or guaranteed by Freddie Mac or Fannie Mae. Despite the rewards lenders are bogged down often taking months to respond to borrower work out packages.

According to the MHA Web site, FHA borrowers who are experiencing difficulty making their mortgage payments should contact their loan servicer or HUD's National Servicing Center at (888) 297-8685. Free foreclosure and credit counseling is provided by calling the "Homeowner's HOPE" Hotline at 888-995-HOPE.

Learn more about this author, Constance Keasler.
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