Falling behind on your mortgage payments can lead to fear of foreclosure, but a Loan Modification Trial Period Plan (TPP) offers a viable way to adjust your loan to more affordable terms.
Think of a TPP as a trial run with new, lower monthly payments over a short period (usually three months). This trial helps the lender ensure you can meet the modified payment before finalizing the loan change. Successfully completing a TPP usually results in a permanent loan modification.
How the Trial Period Plan Works
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Application for Modification: You start by contacting your mortgage servicer and submitting documentation showing your financial hardship (e.g., job loss or reduced income), along with income and expense details.
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TPP Agreement: If you qualify, the lender offers a Trial Period Plan outlining your temporary reduced payment amount and its duration, generally three months.
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Making Trial Payments: You must make the exact trial payments on time each month. Missing or late payments can disqualify you from the permanent modification.
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Permanent Modification: After completing the trial successfully, your lender sends a permanent loan modification agreement requiring your signature and notarization, making the new terms official.
Eligibility and Requirements
To qualify for a TPP, you typically need to be in or near default and prove a significant, ongoing financial hardship. Documentation of your income and expenses is required to show you can afford the new payments.
Example Scenario
Sarah had a $2,000 mortgage but could only afford $1,500 due to reduced hours. Her lender approved a TPP with a $1,450 trial payment for three months. After making every payment on time, she received a permanent modification with a $1,475 payment, helping her avoid foreclosure.
Important Tips and Common Mistakes
- Always pay the exact amount specified in the TPP, not your old mortgage payment.
- Make payments on or before the due date to avoid disqualification.
- Keep communication open with your mortgage servicer and promptly provide any requested documents.
- Remember, the modification isn’t permanent until you sign the final agreement.
Impact on Credit and Guarantees
Entering a TPP may affect your credit because you are likely already behind on payments. Servicers may report the loan as delinquent or in forbearance. However, completing the trial helps prevent foreclosure, which has far worse long-term credit consequences.
While the TPP is not an absolute guarantee of permanent modification, lenders are required by the Consumer Financial Protection Bureau (CFPB) to offer a permanent change if you meet all trial requirements and your financial situation remains stable.
Further Reading and Resources
For more details on loan modifications and foreclosure avoidance, see FinHelp’s Mortgage Loan Modification and Foreclosure glossary entries. Also review the Mortgage Servicing article for insight into your servicer’s role.
For government guidance, visit the Consumer Financial Protection Bureau’s mortgage relief page.
Sources:
- Consumer Financial Protection Bureau (CFPB) Mortgage Relief Program Guidance
- What You Should Know About Mortgage Relief – ConsumerFinance.gov
- Fannie Mae COVID-19 Loan Modification FAQs