The problems with Loan Modifications

When looking to stop foreclosure on your home, one of the first things people look to is a loan modification. 

In essence, this is any alteration or change in the original terms of the promissory note the you signed with the bank (most people would know this as 'the terms of my mortgage').  When you ask the bank for a loan modification, many times you are hoping they will lower your payments, tack on late payments to the back of the loan, let you miss a couple payments, or repay back payments by paying a little extra each month. 

Before you go down this road, read the following article from Forbes Magazine:

 

A forthcoming study in the Connecticut Law Review estimates that only 49% of loan modifications result in a reduced monthly payment, while 34% actually increased the borrower's payments. In these cases, the lenders weren't working to reduce their borrowers' burden, but to recapitalize on it. The result? More than half of borrowers re-defaulted within nine months of receiving their modifications.

If you can't find a way that you'll be able to afford your mortgage, it could be time to face a tough fact: Selling your home may be the best solution. If this is the case, your lender will set a deadline for you to find a buyer and pay off your mortgage balance. If you can't sell the property for the amount you owe, it might be willing to accept a smaller sum.

It seems that Loan Modifications are often like medicine in the Middle Ages where the treatment is sometimes worse than the cure.  I mean...34% have HIGHER payments?!? and less than 1/2 had a lower monthly payment? 

Should you still choose to pursue a loan modification, it is important to ask the following questions:

1.) Do I qualify?  Start by going to the Treasury Department's website and taking a 5 question quiz to see.
2.) Can I afford the payments?   Keep in mind the above statistics.  If your payments are likely to be the same or higher than before, how long can your make these newly modified payments? Try and take good stock of your current financial situation and see what prompted the hardship that caused your missed payments.  Is that hardship likely to be a reoccurring or persistent situation? If so you may want to consider selling the home and renting or downsizing.
3.) Who is going to process my modification request? It is important to note that there are many free services available for people facing foreclosure. Start with a certified HUD Counselor for advice. 

•  In Iowa go to :  Iowa Mortgage Help
  

• In Des Moines: Neighborhood Finance Corporation or contact: Skip Petts, Manager, Home Ownership Center, Ext. 210,   spetts@neighborhoodfinance.org
  

•  Iowa Mediation Services

          Make sure the company is reputable, registered with local oversite agencies, BBB, or HUD           AND are not charging any up front fees!

FYI:  You can process your own Loan Modification request.  Call your Loss Mitigation Department at your bank (Customer Service will transfer you) and ask them to outline the process and send you the required paperwork.  Then, follow up regularly.

4.) Make sure you get everything in writing: You need documentation regarding any changes to the terms of your note.  Oral communications with the Loss Mitigation Department will probably not be binding.  Also many times correspondence between departments is slow, and if you want to stop the phone calls you will want to be able to prove you have a deal worked out.

So, there it is the Good, the Bad and the Ugly about Loan Modifications.  I hope this was helpful, if you are needing to sell your house read the following blog post: Where do I get Started with a Short Sale