Due to prevailing economic conditions, many borrowers have become delinquent or are on the brink of becoming delinquent on their mortgage loans. This has forced lenders to foreclose their loans. But as the number of foreclosures has increased substantially, the prices of real estate properties, especially homes have come crashing down, making foreclosures a non-viable option for either the borrower or the lender. This has prompted some borrowers to request lenders for mortgage loan modifications. Lenders have also been open to the idea, but any such modification option that the borrower suggests needs to be checked for viability. That is why lenders have come up with a procedure called Mortgage Modification Trial Payments.

Basically, it is a short-term loan modification. It gives a borrower an idea whether or not it is possible for him to adhere to the payment as per the revised installments and timeline in the loan modification. Lenders don’t always put the mortgage borrowers through this procedure; however, such trial period is mandatory if the mortgage modification is being sought under Home Affordable Modification Program (HAMP) started by the federal government in the United States.

Fannie Mae has laid down a procedure for home mortgage loan modifications. Under it those borrowers who have become delinquent on their home loans and have applied for a mortgage modification, need to undergo a trial period of three consecutive months to confirm whether they can pay the revised installments on a regular basis. If the delinquent borrower is able to adhere to the new timeline and pay the revised installments in time, then such a loan modification may be deemed as feasible and the lender may execute the required documentation. In case of other borrowers who have not yet become delinquent but are finding it tough to pay installments on time, Fannie Mae has stipulated a trial period of 4 months to check whether they can manage to pay the installments as determined under any loan modification.

Mortgage loans that are under these trial payment programs are deemed as current. Based on the ability of the borrowers to pay installments during the trial period, lenders finalize the deal, and accordingly the mortgage modification agreement is executed. Mortgage modifications may entail either reduction of interest rates or increase in the repayment term. Under HAMP, lenders are also allowed to add back the delinquent amounts to the principal and treat them as additional loan. Lenders may choose to combine any of the three options for modifying the loan.

Mortgage Loan Modification Trial Payments are therefore very crucial from the lender’s perspective as well as they wouldn’t like to repeat the exercise a few months down the road.