Reality of Loan Modification
There is a big “buzz” in our economy that the banks are now touting as the “newest and best” way to solve the foreclosure dilemma. I am speaking of loan modification. Basically, you should be very alert and fully understand what is happening. In a loan modification, the bank simply takes your existing mortgage and re-writes it into a forty year loan. If, you have an existing thirty year loan, you agree to pay off your loan in forty years.
Sounds good. In fact in some regions of the country that is smart. But, let’s look at this horse from a couple of angles. First of all, ask the bank. Are you lowering the amount of money that we owe you? I will just bet that “if” you owed them $300,000 before the modification, you will still owe them $300,000 AFTER the modification. The only thing that changes is your payments are reduced. This possibly enables you to stay in your home.
Now, let’s put on the real hat. Let’s just say that when you bought your home, you paid $300,000 for it and you have that amount still owed. Now, before you even consider paying some company or slick operator a couple of grand to help you through this process, start asking some questions, such as:
What is the house worth today? Would I pay $300,000 for a house that is only worth $150,000? How about your neighbor that simply quit paying, is putting that money in his pocket and will be buying (possibly) a home just like yours for $150,000 because that is the value of the home. Getting interesting?
This frenzy to keep the homeowners in their homes is NOT the best deal. Sure, pride of ownership, etc still enters into the equation. Ask your bank; “Will you delete the late paying history off of my credit report, IF we enter into this loan modification”? What good does it do you to enter into this deal IF your credit sucks? You get stuck with paying (32%) interest rates on credit cards and before you know it, you are back in the same old rut again.
I am not saying” loan modification” is not the way to go. I am saying that today’s consumer does NOT have enough information about loan modification and thinks that this “slick talking” loan modification expert is going to save them.
Here are my suggestions: 1.) Make sure that you are happy with what is going to be reported on your credit report. 2.) Ask the lender, IF, the principal amount of the loan can reflect the value of the house on the day that you agree to a loan modification. (I doubt it, because they are still the greedy institutions that we know). 3.) Ask the loan modification expert to give you the forty year spread sheet so that you know how much you really are paying for this program. 4.) Ask the “guru” to give you a copy of the BPO which the real estate broker provides to determine the present day value of the house.
There is no way in these deals that the lender is giving you anything at all. Even, IF, they lower the interest rate, over a period of forty years it is still more profitable for them, then if the loan stayed in its present thirty year profile.
In closing, be very alert. Ask questions. Don’t sign “nuttin” until you fully, understand. Just remember your neighbor across the street that went into a foreclosure defense program. He is living in his home for almost a year now and has saved that money. Now, IF, the lender does find the note (I doubt it) he can take that money and put it down on a similar house for a lot less money.
Would you rather be in debt for $150,000 or $300,000 on the same home?
