What is a Loan Modification? That is where you and your lender agree to modify one or more of the terms of your home loan. The terms could be a lower interest rate, an extension of the length of the loan (like making a 30 year loan into a 40 year loan), a conversion of an adjustable rate loan (called an ARM) to a fixed rate, the deferring of some of your payments, or any other modification of loan terms.
On paper...this is a wonderful idea. The reality is a mine field laid over quicksand.
If you do choose to take the big leap of the loan modification process on your own, you must first contact the lender and they will lead you to the correct department, normally the loss mitigation department. However, the correct department of a famous bank is one of the worst places you could encounter for help. Employees of this famous bank openly admitted that they are told to give applicants the run- around. The number of people who get mods is staggeringly low...like 4%.
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Say you are a hearty and dauntless soul and you persevere...what is available to you?
You start with a hardship letter to your lender. In order to prove a hardship, you must write a hardship letter that explains the loss of funds, including dates and figures. Next, you must complete a hardship form online or through the mail. The lender will need a copy of the past two years of tax returns along with copies of two of your most current bank statements. A copy of your last two pay stubs is required, even if this is disability or unemployment, etc.
Now what did employees of this famous bank say...that's right; they were instructed to give applicants the 'run-around.' To you, this means, after taking your valuable time to gather all the necessary paperwork, mailing the packet to the correct department, waiting the requisite number of days for postal delivery...this correct department tells you they did not receive the packet or better yet the person to whom you mailed the packet no longer works there and now begins the death by a thousand cuts...they ask you to re-mail the packet.
The most common loan modification programs offered by banks are setup to give you a lower monthly payment or a little breathing room, in order to catch up payments and in turn save your home.
What's the reality..."I went through a lot of back and forth and the all too familiar lost paperwork before finally getting the loan modification. When we finally received the modification they only took $100 off our monthly payment." This is from our unsolicited blog comment files.
Other optional forms of loan modification include:
1-the forbearance, which suspends your monthly mortgage payment for a short period of time. There is a catch; this usually is only offered to those with a hardship such as losing their jobs or medical bills. This program only lasts for a few months and the banks accept payment to resume and all past-due payments to be caught up. With the elections coming up and people threatening to vote in representatives who will erase current medical coverage...don't get sick.
2-Another program offered in the form of a loan modification is what is called a repayment plan, this helps homeowners repay what payments are past due. Many times banks or lenders will give you the opportunity to make up your late payment, by working out a schedule over the next year, which you will pay with your current mortgage. Let me re-word this: you go in looking for relief and they tell you to pay 1.5 times your mortgage.
3-When offering the program of reducing the interest rate, this only lasts for a short time and your rate will escalate after a few years and leave you the borrower with a balloon payment. In this economy...trying saving up for a spare tire let alone some thousands of dollars balloon payment.
4-The lender agrees to change your 30 year to a 40 or 50 year mortgage. With only 4% of loan modifications going through we have yet to see any hard figures compiled on your chances of receiving this option. Your odds are better playing your state lottery. And those odds are like throwing a baseball from California and hitting the moon.
On paper...mortgage relief is what's offered. In reality..."What I see is one department over another has no idea what is going on in their own system." Again...another of the many unsolicited comments on our blog. In other words...real people with real problems are entering the process of loan modification...and coming out 'ground chuck' because the parties at the other end...have their marching orders. Is there another option?
Attorneys, of all people, are quickly developing a national reputation as champions of homeowners facing foreclosure, and are becoming a serious adversary for those banks attempting to fraudulently take possession of the homes of troubled homeowner's, and in some cases receiving the homeowner's property mortgage-free, by filing a Motion to Dismiss (original mortgage cases), a Notice of Rescission (refinance situations), and a quiet title action, based on Federal violations pursuant to the Truth In Lending Act), or the Real Estate Settlement Procedures Act.
In short...anticipating a loan modification will gain you real relief is a fool's errand.
Our advice is to take a serious look at the 'produce the note' option. This is the one option that causes the coolest of bankers to involuntarily release a warm stream of liquid down the left leg of their pin striped suits. It is the option that has caused the Banks to declare a Foreclosure Holiday...for the time being.
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