Rules for mortgage modification set

Guidelines for consistency

Those last three bullet points are somewhat misleading, because the lowered interest rates don't last for the entire term of the loan. They last only five years. After that, the lender is allowed to raise the rate by 1 percentage point per year, until the rate is close to the prevailing rate during the week that the modification was approved.

For example, if Freddie Mac's weekly mortgage rate survey says the average rate on a 30-year fixed in a given week is 5.3 percent, then a modification that's approved on that date will have a rate that eventually rises to 5.3 percent. It might go from 2 percent to 3 percent in Year 6, then to 4 percent in Year 7, then 5 percent in Year 8, and finally 5.25 percent in Year 9.

For at least a year, the mortgage world has recognized the need for one national standard to decide who gets a mortgage modification and who doesn't. Academic studies have shown that different servicers apply wildly different rules governing modifications. Housing counselors say there's a lot of variation within mortgage servicers, too: The success of a modification request depends upon whose desk it lands on. These guidelines are designed to elicit more consistency.

"From where we sit, it's important that there's a recognized framework for modifications. We've been calling for that for a year plus," says Douglas Robinson, spokesman for NeighborWorks, a government-sponsored nonprofit that trains and provides funding for housing counselors.


The Making Home Affordable program appears to have been developed with the idea that borrowers will work directly with their mortgage servicers. Researchers suggest that modifications are more likely to succeed when the borrower seeks a counselor's help. Robinson encourages borrowers to call HUD-certified housing counselors as a first step.

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