Since 2009, the federal government has ordered mortgage companies to modify loans rather than foreclose them.Â Therefore, I have some tips for seniors that can help before you modify your mortgage.Â
The idea is to cut the monthly mortgage payments so they are less than 30% of the homeowner's income.Â The federal government's Making Home Affordable Program has lengthened loan terms-in most cases, it extended from 30 years to 40 years, according to lenders and federal reports.Â Out of 390,000 mortgages, over half have been permanently modified through this program.Â
The U.S. Treasury Department has not released the number of struggling homeowners who have been put into 40-year loans, but lenders say that's the predominant new term for modified mortgages.Â Earlier in January, about 42% of the loans modified at that point had been lengthened.Â
The number of mortgages that have been changed by trimming the principal on "underwater" houses is between 27% and 28% of all modifications.Â The modified loans have had their interest rates reduced.Â
Attorneys specializing in home loans say that, if you're 60 in a 40-year note, you're just renting from the bank and you're paying more than you would from someone you could rent from.Â That is what the mortgage industry has gotten to.Â
The stepped approach to modifying home loans in the federal foreclosure-prevention programs is to reduce interest-rates and lengthen loan terms before the principal write-offs.Â This is according to what the government has called for specifically.Â
Mortgage companies are not allowed under the federal Equal Opportunity Credit Act to consider the age of homeowners when putting them into loans.Â Homeowners typically don't have any payment penalties.Â Homeowners that have taken a 40 year home loan can always pay more if they want to treat it like a 30 year loan.Â
Forty year loans make little sense financially, particularly for seniors who face paying the upfront interest possibly for the rest of their lives.Â Usually, the 60+ clients take the reduced interest rate and longer term because they are attached to the home and want to stay.