FHA Loan Modification

FHA Loan Modification

The Department of Housing and Urban Development is a development agency of the Federal government. A subordinate agency is the Federal Housing Administration that governs mortgages, and also provides mortgage insurance. The Home Affordable Modification program is an initiate, which is provided by the FHA.

Please note that any decision that you take on a conclusion drawn after reading this, should be confirmed with the resources that are provided on the website of IRS (Internal Revenue Service), Freddie Mac and Fannie Mae, your lender or bank, the Bank of America, and the Department of Housing and Urban Development.

The Basics

If you want to get a FHA mortgage loan modification, then one of the most important thing you will have to check, right from the beginning, that is when you take the mortgage loan, is whether your lender is a Federal Housing Administration Lender or not. The FHA insurance (which in some cases is also known as a mortgage protection) works like any other mortgage insurance scheme, where the insured person (who is also the borrower) pays a premium to the insurance company or insurer. In cases where the borrower is not able to repay an installment and mortgage payments on time, then the insurance company sets in to cover the financial risk. This procedure is however subject to terms and conditions, and there are several permutations and combinations of the coverage, such as partial installment payment, and in this case, loan modification. The modification basically means reducing the interest rate, installment per month, and increasing the time period of the loan. There also might be other changes regarding rates and late fees.

In this case, the FHA gets in touch in with the mortgage lender, and covers his loss that is incurred as a result of the modification. The FHA has prescribed a certain decorum for this procedure.


There are certain requirements for the modification process that have been set forth; the first important condition being that it should be a FHA loan. Requirements also include the limit of interest rate and existence of a hardship. Some important conditions that make you eligible for this program include:

  • The property must be a primary residence.
  • It must be a first mortgage and the amount that is owed should match the criteria specified by the FHA.
  • The mortgage should be taken out before January 1, 2009.
  • The applicant must have a financial hardship, usually the one that can be proved.
  • The payment of installation accounts for more than 31% of the applicants monthly income.
  • The lender should be FHA approved, and the FHA insurance must be active.

The HUD-1 Settlement Statement also carries the written proof of the eligibility. In case about the doubts regarding this matter, one can also call the helpline of either the Department of Housing and Urban Development, or the Bank of America. The FHA loan limits for the eligibility and the loan rates after loan modification can also be derived from the official portal of these agencies with the help of mortgage calculators.

To get started with the modification process, all one has to call the help desk of the Bank of America (1.800.846.2222), upon which, an eligible applicant would be sent a modification packet, which contains three important documents that have to be completed and submitted, along with an income and residential proof. The forms or rather documents include the Request for Modification and Affidavit (RMA) form, IRS Form 4506-T, Request for Transcript of Tax Return, and the Hardship Affidavit. The next step is a critical one as the proposed modification, rates, terms and conditions, etc., are implemented on a trial basis for 3 months, so as to prove whether the new rates are appropriate or not. If this trial period is completed successfully, then the mortgage is modified, and a new agreement is signed.

There are considerable number of effects of going in for a loan modification, which include tax and legal implications. However, a loan modification by the FHA is the best way to avoid foreclosure or a bankruptcy.