What Is A Loan Modification Program?

A loan modification can make a major difference in your ability to repay a financial institution. Even if you're worried you might not have the money to pay, you should meet with a bank officer and discuss potential loan modification programs. You may wonder what loan modification programs are, though, so let's look at three basic facts about them.

Funding Source

Typically, programs use government money to support homeowners who want to hold onto their places. Loan modification programs often exist to help people facing financial troubles, especially in times when the economy is performing poorly or interest rates are fluctuating. Some programs focus on specific groups, such as rural Americans, historically disadvantaged groups, or veterans. Federal and state agencies may support programs.

Generally, the government provides the money contingent on the success of the process. This means the bank has an incentive to make the process work if at all possible. Otherwise, it may not get the funds.

Likewise, banks have the option to establish their own programs if they wish. A loan modification is an option if a bank believes a customer can pay under modified terms, potentially avoiding default. However, this kind of modification is entirely at the bank's discretion.


The diverse range of loan modification programs makes it hard to say who will qualify for any specific one. However, you can speak with a loan officer at your bank to learn what options may be available where you live.

Ideally, you should try to have supporting paperwork to show what your financial situation is. If you have at least your last two years of taxes, that will help. Likewise, folks who've seen recent changes in financial circumstances, such as layoffs, can present paperwork in the form of layoff notices, pay stubs, and documents from unemployment programs. You may also need to provide evidence of major changes to your living situation, such as divorce or marriage.

Make copies of all the paperwork involved with your modification request. Store the originals in a safe place so you don't risk accidentally losing them.

What a Modification Looks Like

A loan modification typically alters the term of an existing loan. For example, it might change the interest rate and how long the borrower has to repay the principal. When loan modification programs are involved, a government agency usually picks up at least part of the difference between the previous loan and the modified one.