Loan modification will try your patience
One of the keystones of the efforts to stem the foreclosure crisis has been a plan to modify homeowners’ mortgages to make them more affordable. This means that the interest rate and terms of the loans can be re-written to lower the homeowner’s payments.
However, as there was no infrastructure in place in the mortgage industry to deal with this, it is kind of a “design and build as you go” type of thing. There are no real industry-wide uniform standards for modifying a loan and many lenders have resisted investing the manpower and capital needed to effectively deal with the onslaught of potentially re-working millions of loans.
The result has been mass frustration by consumers who must often work diligently for six months or more and may get nowhere. Oftentimes paperwork has to be sent in multiple times because it is simply lost in the shuffle.
Lenders have put thousands of workers to work on these efforts, but they really need tens of thousands. There simply are not that many trained workers out there. In addition, the lenders are writing down the value of billions of dollars in assets and getting to spend tens of millions of dollars doing it.
Unfortunately the majority of loans that have been modified have become delinquent again, making many wonder if the banks should not just stop the bleeding and proceed with even more mass foreclosures than they already are dealing with.
It is also noted in the industry that lenders have been very slow to respond to legitimate offers to buy foreclosed properties or facilitate short sales. Some wonder if resources would not be better spent on making a deal in hand fly than trying to rework millions of mortgages that might not work out anyway. Bank of America can take up to three months before even looking at a short sale offer.
But this doesn’t mean that borrowers should not pursue the opportunity for a loan modification – the results can be dramatic if it works out. We know of mortgages that were modified to a rate of 3-4 percent, although usually that rate is only for a few years until it resets to a fixed rate. The results can be a savings of hundreds of thousands of dollars over the life of the loan.
You could be a candidate if your income has dropped drastically but you still have a job. Those who are unemployed have little hope of getting a modification as there must be some immediate ability to make the payments. You do not have to be delinquent on your mortgage payments but it’s important to start the process early on when you feel you are headed towards a hard time.
Be prepared to spend six months resending information multiple times and making endless follow calls and spending hours on hold. Assume your entire file is likely to be lost at least once, as chances are it will be.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-78-0342. He welcomes mortgage-related inquiries from readers.
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