The truth about Loan Modifications…

Los Angeles, CA – The Star Tribune, a newspaper in Minneapolis, recently ran a story about loan modifications. Here is an excerpt from the article:

“Many people who sought help under a federal program created to keep them from losing their homes are instead getting saddled with huge, unexpected bills.

Thousands now face a stark choice: Go deeper into debt, or foreclosure.

Lenders routinely approved short-term “trial” loan modifications that reduced payments for desperate borrowers under the umbrella of the Obama administration’s Home Affordable Modification Program. But lenders continued to count the mortgages as delinquent or in default.

Now instead of granting permanent modifications, lenders often are reinstating the original loan terms and demanding big back payments.

Many homeowners are draining their savings and incurring new loans to make the temporary payments only to end up in foreclosure anyway when they can’t afford the large, lump-sum payments demanded at the end of the process.

Paula, 60, recalls the day she was approved for a trial modification in June 2009. After a 30-minute conversation, a CitiMortgage representative agreed to cut her monthly payment by half to $929. “It was the answer to my prayers,” said Viehman, a state employee who lives in Minneapolis.

Fifteen months later, CitiMortgage sent two letters claiming she was in default on her mortgage and owed $13,569 in back payments, late fees and other charges. When Viehman called to complain, she learned that CitiMortgage had denied her application for permanent relief under HAMP, though the bank had never notified her.

The article continues, “Incentives favor foreclosure. It would seem to be in a mortgage company’s interest to modify a mortgage, because lenders often recover only a small fraction of a loan after a foreclosure. But only 12 percent of all delinquent mortgage borrowers are receiving permanent relief “.

Some lending experts argue that the root of the problem lies in the complicated way in which mortgages are bought and sold. Most end up with institutions or investment trusts that hire servicers to collect monthly payments.

Servicers, unlike lenders, don’t generally lose money on a foreclosure. In fact, servicers actually can collect more in fees on a foreclosure than from modifying a mortgage, according to a 2009 study by the National Consumer Law Center.”

Unfortunately, the current state of our mortgage industry is incredibly flawed and not in favor of borrowers at all. If you have been turned down for a loan modification, you may want to keep trying with your bank baring in mind all the risks and potential disappointments. However, some homeowners are successful at their loan modifications. If you’d like to go a different route and consider selling, please contact my team today to see if we can help 310.694.2288