A mortgage loan modification, in which certain terms of a borrower's loan are permanently altered, is permissible for only one time within 24 months and requires particular financial analysis criteria, such as a verifiable income loss or an increase in the borrower's cost of living, states the U.S. Department of Housing and Urban Development. The lender may consider legal fees and associated foreclosure costs when modifying the loan's principal balance.
A loan modification changes a borrower's existing loan to help him make payments that fit his current financial status, explains HUD. As of 2015, qualifying borrowers must provide proof of income loss or changes in living expenses; receive employment income, pension, Social Security benefits, disability benefits or other continuous income; and have a minimum of $300 surplus income that is at least 15 percent of the net monthly income. Eighty-five percent of a borrower's surplus income should be inadequate to pay for overdue payments within six months. Other criteria are related to the borrower's monthly mortgage payments.
The lender may examine the property involved in a loan to make sure that its physical condition doesn't affect the borrower's capability to make the modified mortgage payments, notes HUD. It also conducts an escrow analysis and waives all accumulated late fees.