Some people are the "do-it-yourself" kind and up for any challenge. If you are one such person who is detail oriented, patient and persistent, you can certainly attempt to get your loan modification done on your own.

A loan modification is similar to a mortgage refinance, except there are far fewer fees (sometimes none) involved and there is no change to the amortization of the loan.  In most cases, the lender simply drops your mortgage rate down to a lower interest rate which makes your monthly payments affordable and hence prevents you from entering foreclosure which is a costly proposition for the lender. Loan modification was once a little-known way to get a lower interest rate without dealing with a complete refinance, many borrowers are now turning to this method in a desperate attempt to lower interest rates from an adjustable mortgage that has climbed to unmanageable levels. 

Some mortgage lenders allow borrowers to change the type of loan they have along with adjusting the interest rate from a modification.  This occurs most often with borrowers who desperately want to switch from an adjustable rate to a fixed rate mortgage in an attempt to avoid rising interest rates.  Every mortgage lender has their own rules and regulations associated with rate modifications so it is important to stay away from the assumption that you can get the same rate modification that an acquaintance tells you about.

This article walks you through the process of getting a loan modification on your own.  Don't wait for the lender to offer a rate modification because it may never happen.  Borrowers should be proactive and vigilant about getting a rate modification.

Step 1. Find out who you should contact

Before even contacting your mortgage company you must find out if you are dealing with a mortgage servicer or a mortgage loan originator. A mortgage servicer is responsible for collecting your monthly loan payments and crediting your account. A servicer also handles your escrow account, if you have one. A mortgage originator on the other hand is the broker or bank who secured you mortgage loan in the first place. This does make a difference as mortgage servicing companies tend to be a bit more equipped in dealing with loan mod requests as they typically have a longer term outlook on loans and have special departments assigned to loss mitigation and foreclosure prevention.

Step 2. Learn about your Lender's Loan Modification Policies

Become familiar with your lender’s loan modification policies. Find out if your mortgage company is willing to discuss modifying your loan if you are not yet behind on your mortgage payments. Some lenders require borrowers to be delinquent for at least three months before they even accept applications for loan modification. If you can no longer afford making payments on your mortgage becuase of job loss or health issues, you might not even be qualified for a loan mod.

Step 3. Request your Lender's Loan Modification Package

It is prudent to call and request a loan modification package from your lender before discussing with them your specific case. By reviewing their package, you will know what information they need and what their policies are. Doing so will provide you with ample time to prepare your answers to the questions you might have otherwise been asked over the phone. Additionally, by conforming to your lender's own unique form you will have a better chance for a response than other applications which are submitted in other formats and hence have fallen to the bottom of the pile facing delays in processing.

Step 4. Negotiation

Now that you are prepared, you can finally start discussing your specific situation with your loan company. The idea here is that you want to convey to your lender that you have experienced a life event or hardship and can no longer afford your mortgage payments. A rate increase is actually considered on such event. In this case, you must explain to your lender that you have an adjustable rate mortgage and are unable to make the higher monthly payments. You are delinquent on your loan and need to modify it or there is a serious chance that you’ll fall further behind and/or go in to foreclosure.

You don’t want to say for certain you’re headed to foreclosure because lenders don’t like wasting time with lost causes - there are enough people out there that have a slim chance of staving off total loss through a loan modification - but you want to communicate to them that the problem is serious and needs immediate attention.

They will ask you some basic questions. You MUST be honest, but you want to be frank in your assessment of your financial situation. If you’re the eternal optimist now is not the time to be upbeat about your financial wherewithal. Within the bounds of honesty you must show that you are in a bad financial place.  Offer to send a copy of your budget or a letter detailing your financial situation, and if you are asked to do this then send it "Return Receipt."

If they assess that your situation qualifies for a loan modification they will send you an information packet along with a worksheet to calculate your monthly expenses. Think of this process as similar to when you qualified for the loan but in reverse. You must unqualify yourself to prove that you are financially incapable of making the increased mortgage payment. You also must prove that a modification is going to improve your situation to a point where you will be an acceptable risk for them. If they calculate that even after a loan modification you’re still too deep in the red to be helped they will deny you a chance at modifying your loan.

Step 5. Document Your Communication

This is a very important step. Create a spreadsheet that acts as a call log to help track your diligence in completing your loan modification. It will also keep your notes in one place. This is a critical document because you will be talking to many different people in the loss mitigation department. While they have phone notes it’s important that you capture conversations on your own so that if you run in to a roadblock or dead end you can use the information you’ve written down in your log to help you keep pushing forward. You can also reference promises, comments or details that may help you overcome objections as you talk to other people in the department.

On your spreadsheet you’ll want to capture the following: date, time, number called, full name of the person you spoke to, and detailed notes of the conversation.

Not only does this keep you organized, it helps document your efforts to improve your situation should the lender initiate foreclosure proceedings. You’ll have it available to all parties to show you’ve made a good faith effort to work out an amicable and fair resolution to the problem.

Step 6. Be Patient, Stay Calm

These days the loss mitigation departments are flooded with calls of homeowners needing mortgage help. Be patient but diligent when expecting responses to your requests. Also, it is very easy to get irate and react to your some of your lender's personnel. Certainly refrain from doing so as this does not help your cause at all.

Step 7. Prepare a Good Faith Deposit

Lenders ultimately would like to see you start making mortgage payments again. Since by the time you request for a loan modification you have more than likely missed 3 or more payments, they assume that you have some of that money saved up and can start making the new payments. It will certainly help your cause if you have the initial payment ready to be made to get started on a good note.