Loan Modification - 5 Lies You Need to Know About
- By G.P. Hendricks
- Published 17/10/2009
- Finances
- Unrated
G.P. Hendricks
G.P. Hendricks is a published author and has been seen on broadcast television discussing loan modification, bankruptcy, and insurance issues. To learn more about theLoan Modification process, visit your One-Stop-Shop for Loan Modification and Financial information at: HomeSteadRescue.com
View all articles by G.P. Hendricks
If you watch the news on any given evening you are almost certain to see a story regarding the current real estate crisis. Foreclosure is a circumstance that many American families are facing and many of them will attempt to modify their mortgage loans by either contacting their mortgage lender and asking for help or paying for the services of a loan modification professional. The question that seems to be unanswerable is which option is best.
The facts are that banks are looking out for their own interests first and the homeowner second. However, in most cases even though the bank does not have your best interest at heart, they stand to lose considerable money if they foreclose. By the time everything is said and done the average cost of a bank reselling a home after foreclosure is in excess of $30,000 and that is only if the recoup the full balance owed on the mortgage. So if the bank stands to lose money through foreclosure and the homeowner stands to lose money through foreclosure, why is it so difficult to obtain a loan modification?
There are several factors that come in to play. Banks were simply unprepared for the real estate collapse and were very slow getting on the loan modification bandwagon. Many homeowners had no idea that modifying their loan was even an option. Many lenders are still dealing with staffing problems and the training of their employees to approve or reject loan modifications. Prior to the Homeowner Affordability and Stability Plan that was announced by President Obama in February, getting a bank to agree to a loan modification had roughly the same likelihood as finding Bigfoot. This was especially true if a homeowner had a Sub-Prime loan.
Even though the government is now pushing lenders to be more cooperative, the system is still running at the pace of a California freeway in rush hour. Thousands of homeowners simply give up in defeat and let the foreclosure happen. After hours on the phone being transferred from one clueless customer service department to another and months of sending duplicate documents to said clueless customer service departments it is easy to understand why homeowners are frustrated and are willing to walk away from their homes.
Below are 5 lies of the loan modification process that will give homeowners contemplating a modification some basic insight as to how to proceed and what to expect from the process.
1. Homeowners can expect to reduce their principal balance to a level that is comparable
to current home prices in their neighborhood.
The chances of principal reduction is slim at best, most mortgages sold on the secondary market will allow changes to the terms of the original mortgage, but this is limited to changing the rate, changing the term and changing the loan from an adjustable rate to a fixed rate
2. Chapter 13 Bankruptcy is a better option to keep the home.
While technically this is not a lie, it is worth mentioning that filing a bankruptcy may be necessary in certain circumstances. Many homeowners that file for a bankruptcy only to stop a foreclosure may be better suited to a modification. If you go into a bankruptcy with a ten percent interest rate you will exit it with the same interest rate. However, specialists can modify a mortgage inside of a Chapter 13 Plan if the borrower fits the modification model. Borrowers in this situation cannot modify these loans themselves, as lenders are not allowed to communicate with the borrower once a bankruptcy plan is filed with the courts. These specialists are rare. Few modification companies understand the bankruptcy process at all.
3. If I hire a loan modification company they will take my money and I will lose the house anyway.
As with any purchase it is necessary to examine the reputation of the company you hire. There are many companies that do loan modifications not only successfully, but work very hard to obtain the best terms for their clients. It goes without saying that too many crooks jumped in to this industry looking to make a fast buck. Making sure that the company that you choose is reputable is well worth the time spent researching them.
4. A loan modification company guarantees what interest rate or terms they can offer to you prior to contacting the bank.
This should be a major red flag. While an experienced modification specialist can usually give their opinion as to what terms can be expected, there is no way to guarantee early in the process what terms will be available to a homeowner.
5. It’s not possible to do my own loan modification.
This is simply not true. As stated earlier a homeowner can modify their own mortgage, but it is usually a difficult and very time consuming process. Most lenders are only available during normal business hours and you can expect to invest many hours of phone time being shuffled between departments and unless you are a very organized person, many hours of gathering documents that the lender will request. Unless you have lots of free time and some understanding of how financial institutions work, hiring a professional to do the work may save you money and a lot of grief in the long run.
The facts are that banks are looking out for their own interests first and the homeowner second. However, in most cases even though the bank does not have your best interest at heart, they stand to lose considerable money if they foreclose. By the time everything is said and done the average cost of a bank reselling a home after foreclosure is in excess of $30,000 and that is only if the recoup the full balance owed on the mortgage. So if the bank stands to lose money through foreclosure and the homeowner stands to lose money through foreclosure, why is it so difficult to obtain a loan modification?
There are several factors that come in to play. Banks were simply unprepared for the real estate collapse and were very slow getting on the loan modification bandwagon. Many homeowners had no idea that modifying their loan was even an option. Many lenders are still dealing with staffing problems and the training of their employees to approve or reject loan modifications. Prior to the Homeowner Affordability and Stability Plan that was announced by President Obama in February, getting a bank to agree to a loan modification had roughly the same likelihood as finding Bigfoot. This was especially true if a homeowner had a Sub-Prime loan.
Even though the government is now pushing lenders to be more cooperative, the system is still running at the pace of a California freeway in rush hour. Thousands of homeowners simply give up in defeat and let the foreclosure happen. After hours on the phone being transferred from one clueless customer service department to another and months of sending duplicate documents to said clueless customer service departments it is easy to understand why homeowners are frustrated and are willing to walk away from their homes.
Below are 5 lies of the loan modification process that will give homeowners contemplating a modification some basic insight as to how to proceed and what to expect from the process.
1. Homeowners can expect to reduce their principal balance to a level that is comparable
The chances of principal reduction is slim at best, most mortgages sold on the secondary market will allow changes to the terms of the original mortgage, but this is limited to changing the rate, changing the term and changing the loan from an adjustable rate to a fixed rate
2. Chapter 13 Bankruptcy is a better option to keep the home.
While technically this is not a lie, it is worth mentioning that filing a bankruptcy may be necessary in certain circumstances. Many homeowners that file for a bankruptcy only to stop a foreclosure may be better suited to a modification. If you go into a bankruptcy with a ten percent interest rate you will exit it with the same interest rate. However, specialists can modify a mortgage inside of a Chapter 13 Plan if the borrower fits the modification model. Borrowers in this situation cannot modify these loans themselves, as lenders are not allowed to communicate with the borrower once a bankruptcy plan is filed with the courts. These specialists are rare. Few modification companies understand the bankruptcy process at all.
3. If I hire a loan modification company they will take my money and I will lose the house anyway.
As with any purchase it is necessary to examine the reputation of the company you hire. There are many companies that do loan modifications not only successfully, but work very hard to obtain the best terms for their clients. It goes without saying that too many crooks jumped in to this industry looking to make a fast buck. Making sure that the company that you choose is reputable is well worth the time spent researching them.
4. A loan modification company guarantees what interest rate or terms they can offer to you prior to contacting the bank.
This should be a major red flag. While an experienced modification specialist can usually give their opinion as to what terms can be expected, there is no way to guarantee early in the process what terms will be available to a homeowner.
5. It’s not possible to do my own loan modification.
This is simply not true. As stated earlier a homeowner can modify their own mortgage, but it is usually a difficult and very time consuming process. Most lenders are only available during normal business hours and you can expect to invest many hours of phone time being shuffled between departments and unless you are a very organized person, many hours of gathering documents that the lender will request. Unless you have lots of free time and some understanding of how financial institutions work, hiring a professional to do the work may save you money and a lot of grief in the long run.