A Loan Modification is a permanent change in one or more of the terms of a Mortgagor’s loan, allows the loan to be reinstated, and results in a payment the Mortgagor can afford.

Question 1: In utilizing the Loan Modification option to bring an asset current, can the Mortgagee include all fees and corporate advances?


Question 2: May a Mortgagee perform an interior inspection of the property if they have concerns about property condition?

Answer: Yes, per Mortgagee Letter 2000-05, page 20, the Mortgagee may conduct any review it deems necessary to verify that the property has no physical conditions which adversely impact the Mortgagor’s continued ability to support the modified mortgage payment.

Question 3: Can a Mortgagee include late charges in the Loan Modification?

Answer: Mortgagee Letter 2008-21 states that the goal in providing the Mortgagor a Loan Modification is to bring the delinquent mortgage current and give the Mortgagor a new start, the Mortgagee should waive all accrued late fees.

Question 4: When utilizing a Loan Modification option, can a Mortgagee capitalize an escrow advance for Homeowner’s Association fees?

Answer: HUD Handbook 4330.1 REV-5 (Paragraph 2-1, Section B, Escrow Obligations) states: Mortgagees must also escrow funds for those items which, if not paid, would create liens on the property positioned ahead of the FHA-insured mortgage.

Question 5: Is there a new basis interest rate which Mortgagees may assess when completing a Loan Modification?


Question 6: Are Mortgagees required to re-amortize the total amount due over 360 month period?




Question 8: Will HUD subordinate a Partial Claim, should a Mortgagor subsequently default and qualify for a Loan Modification?

Answer: If a Mortgagor subsequently defaults and qualifies for a Loan Modification, HUD will subordinate the Partial Claim.

Question 9: Are Mortgagees required to perform an escrow analysis when completing a Loan Modification?

Answer: Yes, Mortgagees are to perform a retroactive escrow analysis at the time the Loan Modification to ensure that the delinquent payments being capitalized reflect the actual escrow requirements required for those months capitalized.

Question 10: Can a Mortgagee qualify an asset for the Loan Modification option when the Mortgagor is unemployed, the spouse is employed, but the spouse name is not on the mortgage?

Answer: Based upon this scenario, the Mortgagee should conduct a financial review of the household income and expenses to determine if surplus income is sufficient to meet the new modified mortgage payment, but insufficient to pay back the arrearage. Once this process has been completed the Mortgagee should then consult with their legal counsel to determine if theasset is eligible for a Loan Modification since the spouse is not on the original mortgage.