Keeping up with mortgage payments is not easy
Despite efforts to make lending institutions work with their borrowers to avoid foreclosures, the loan modification process is still riddled with misinformation. Here are some of the most common myths and contrasting facts:
1) I have to hire someone to do this for me.
As a mortgage broker, I first became alarmed at the offers offering to pay me to send my clients to loan modification experts that began clogging my in-box in late 2008. How these companies could become expert in this arcane area so fast perplexes me still. The only entity that can approve a request for a loan modification is the mortgagee, the person or company who receives the mortgage as a pledge for repayment of the loan. Not the servicer, they are there to process the payments, take a piece, and pass the rest along to the mortgagee. The servicer will process the loan modification request, but it is not their decision. The last five years have seen vast pools of mortgages bought and sold in bundles all over the world, although many have wound up in the portfolios of American banks. If one is fortunate, the lender and the servicer might be the same company. These companies have been very very slow to staff up to meet the demand, and are mired in old thinking that foreclosures are the only answer to struggling borrowers, so it is frustrating and difficult, but does not require any third party help.
2) I must be delinquent in my payments to qualify.
In stubborn rejection of common sense, many borrowers were told this by their loan servicers. That was the policy of the bank, not a law or a regulation, and it is definitely not the case now. The federal government has begun to pay out incentives to loan servicers to help borrowers regardless of their payment status, so do not deliberately hold off on loan payments before applying for a loan modification, it will not help your chances.
3) All of the mortgages I have can be modified.
Unfortunately, only first trust deeds on primary residences were targeted by the new legislation, and this does not help those struggling to pay Home Equity Loans or Home Equity Lines of Credit – “seconds”. There are no laws forbidding modifications of these loans, just less pressure to do so.
4) The property is worth less than I paid for it, so the principal on the loan will be reduced.
If a loan modification is approved, it is highly unlikely that the principal will be reduced. The rate, maybe, the payments, perhaps, but almost never the principal. Emphasizing the deterioration in the value of the lender’s collateral is not a winning strategy.
5) My original loan was “stated income”, so I do not have to provide
tax returns.
For many with stated income loans, their self employment income was real, but difficult to document. Underwriters would average the last two years tax returns, and depending on what quarter of the year we were in, this could grossly understate a borrower’s actual income, especially if the business was in its first couple of years of existence. The salaried borrowers had to be in the same job, or line of work, for the 24 months preceding the date of application. It is an expectation that today’s “loyalty-free” job market seldom lives up to. The underwriters used compensating factors, like large balance investment, savings, retirement accounts, and/or excellent credit histories to qualify these borrowers. Like most loans originating today, all loan modifications require “full documentation”. However, credit and savings are much less of a consideration than those applying new loan. In order to work out a new payment plan, the lender will need to know exactly what the borrower is making now. Under the Home Affordable Modification Program, you must have a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31 percent of your monthly gross (pre-tax) income. For the self employed, the last two years’ tax returns will be analyzed, and the income averaged over those two years. For salaried borrowers, current income will be based upon/annualized using the most recent paystub. I suggest that those considering this program first work out this calculation on their own. It will save considerable time and effort.
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http://www.makinghomeaffordable.gov/
http://realtytimes.com/rtpages/20090126_myths.htm
http://www.nytimes.com/2009/07/30/business/30services.html
Comments
Regarding second lien modifications - there is now a govt program for second liens
A Second Lien Program to reach up to 1 to 1.5 million homeowners, and potentially reduce payments further for up to 50 percent of participants in the Home Affordable Modification Program: The Second Lien Program will be a complementary program to the first lien modification program. It is intended to reach more than a million responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. In the current economy, in which 5.1 million jobs have been lost over the past 14 months, millions of hard working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly if they received subprime and exotic loans with exploding terms and hidden fees. The Second Lien Program will help create a sustainably affordable mortgage payment for millions
Homeowners should hire an attorney to process their loan mod. Lenders cannot be trusted to keep the homeowner's best interests at heart when processing mods. Also, they are putting language into these modifications that will allow them to sue you if you later lose the home to foreclosure. If you can't afford an attorney modification, then at least spend the money to consult with an attorney BEFORE you submit the paperwork to the lender. You could save yourselve from financial disaster down the road.
www.foreclosureindustry.com
While there may be instances where an attorney's help is desirable, the myth is that this help is necessary.
Check out www.obamamortgagerelief.org/ . There needs to be a program for the elderly but not quite to retirement age for mortgage modification when the have lost their job during this particular recession. I made a decent wage because I put my time into a company and now have no job. I am looking at $10 - to $12 hr jobs after working all my life. You can't make a mortgage payment on that kind of money. I will eventually lose my home
Good mortgage modification articles, Catherine. Could you do an article on "how to find out who the actual investor is for a mortgage". Don't we mortgage borrowers have a right to know? I would rather deal with the actual investor if possible. Thanks
Good job Catherine.
The program is a piece of s h i t, plain and simple! It's a nightmare and Mr OBama thought he was helping people by creating this. Like anything the govt touches, it s u c k s.
They drag out the process to put you in forclosure so they can tac on more fees and court costs. The 30 to 60 day process turns into 6 months so even if you want to be proactive and be a responsible homeowner you can.
This is why cities are developing tent cities and car parks because people are being thrown out of their homes.
I better stop before my head explodes telling what I really think about this program.
jimwhenry.... U R so correct. I was RIF'D by one of the major banks that took bailout money,didn't need it and used it for another purpose. 15 years gone. The 50/50 rule If you make $50,000 or more and UR 50 yrs or more, you are the first to go. All Corp America uses that formula.
Thank you for clearing up this misinformation, I feel that the loan modification programs have the WORST process of getting clear information to mortgage companies and their customers.
http://www.obxenergyaudit.com
If you're unable to manage your mortgage or you're already behind on payments, try negotiating a workout plan with your lender in order to avoid foreclosure. There are a variety of programs available that will help you avoid foreclosure like forbearance, deeds in lieu, short sales, mortgage loan modifications, and others. Mortgage loan modification is where the lender agrees to lower your mortgage interest rate, add any late fees and penalties to the mortgage balance, and extend the term of the loan, in order to lower your monthly payments. Home loan modification may be offered alone or as a part of a forbearance. However, not all loans are appropriate for mortgage modification. Loans that are typically modified are those that have interest rates above market rates or have a lower loan-to-value ratio and mature term.
http://ameriloansearch.com/news/mortgage-lenders-protects-original-loan-...
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