During the housing crisis, many homeowners found themselves facing delinquency or foreclosure. One solution many turned to in order to keep their homes was the mortgage modification. Lenders were willing to change the terms of the borrower’s mortgage to forgive some principal, reduce monthly payments, or otherwise make changes to help the homeowner. However, these modifications may make it more difficult for these homeowners to get a new mortgage.
Many conventional mortgages require homeowners to have made 24 payments on their current mortgage after modification in order to qualify for a new mortgage. Those who had some principal forgiven as part of the modification may not be eligible for a conventional mortgage until they have paid that mortgage off. Those who had their monthly payment reduced and have made at least twelve months of payments may be eligible. Each modification tends to be a little different and depends on the needs of the borrowers, so the guidelines for who is eligible for a conventional mortgage tend to be somewhat flexible.
Some lenders also fail to report modifications, leaving them off of the borrower's credit report. If a borrower does have a modification on their credit report, they need to report the details to the new lender. Some lenders interpret modifications differently from what Freddie Mac and Fannie Mae do, and sometimes this works in the borrower's favor. If the modification does not appear on the credit report, documentation may not be necessary.