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LOAN MODIFICATION PROVES ELUSIVE - Not Surprisingly!

It is still freezing here in Chicago!  

You want proof?  Watch ESPN for tonight's Chicago Bears-Green Bay Packers football game, and note the steam rising from the field, and from the players on both sides.

While you're watching the game - say a prayer that the Bears will pull this one off tonight and keep their post-season hopes alive.  Will ya?

Much has been said about Mortgage Loan Modification Programs, and their potential to make it easier for those in financial distress to keep their homes and fend off foreclosure.  Have you heard?

Indeed, several large lenders - including Bank of America, J.P. Morgan Chase, Wells Fargo, and Citibank are considering more requests for Loan Mods than they ever have.  Still, however, the process remains cumbersome, and not every loan modification request gets granted.

Often times, those with foresight - who attempt to contact their lender BEFORE they become delinquent in their loan - are less likely to receive modified loan terms than a borrower who is several months late, and approaching loan default.  Why, lenders might think, should they give you easier-to-afford terms if you're keeping up with your payments anyway?

This might make good business sense at first, but does overlook the likelihood of a near-future default by a candid borrower.

To determine if a specific borrower would qualify for a modified mortgage loan, they look at their monthly house payment as a percentage of their total gross household income.  It that house-payment-to-income ratio exceeds lender guidelines - typically, 31 to 41% for most lenders - a loan modification program is considered.   However, if the ratio is lower and more favorable, the loan modification is more likely to be denied.

Of course, there are always mitigating circumstances.  If the borrower has endured some sort of hardship - loss of a job, divorce, prolonged illness, physical disability, or the death of a spouse, the application for loan modification stands a better chance for approval.  Most lenders require a written, signed "hardship letter" as part of your application.

To create a loan modification that is win-win for both parties, the bank aims to collect as much as possible of the original loan amount, while, at the same time, working out a payment schedule that the borrower is likely to keep current with.

Common loan modification programs may offer an extended period for principal payback (often as much as 40 years, rather than the original 30), a reduction in the interest rate, and a deferral of the principal payments due.

Very few loan modification programs offer actual principal reduction, or forgiveness of debt.  For banks, giving back this actual equity is a very last resort - one often taken only in the more desperate situations of short sale or foreclosure.

Approval time varies, depending on one's individual financial situation.  Some seeking loan modification are approved immediately; others must wait longer.

Check out the U.S. Department of Housing and Urban Development's website for more information on Mortgage Modification programs, as well as connections to a not-for-profit Mortgage Counselor who can help nervous borrowers successfully apply for a Loan Mod with their lender. 

Our post today via BlogChicagoHomes.com provides more details, as well as a link to Marcie Geffner's article in last Sunday's Chicago Sun-Times.

DEAN & DEAN'S TEAM CHICAGO

Comment balloon 6 commentsDean Moss • December 22 2008 09:54PM

Comments

I love the philosophy of punishing people for being pro-active.  The banks wonder why so many people see it as an incentive to stop making payments.  It's the only way to get any help.

Posted by Brian Brumpton, Boise Idaho Real Estate (Keller Williams Boise) almost 10 years ago

I have someone in a tough situation, we cant sell the house for what she owes, we tried....so in order to get a short sale, she has to be behind on payments 60 days or more...so now she has to miss some in order for the bank to deal with her....does that make sense? 

It is really cold, I am glad I am not at the game!

Posted by Pat Tasker, Your Milwaukee Metro Area Agent (WI) (Shorewest Realtors) almost 10 years ago

Pat, Brian -

I find it reprehensible that banks act this way - seems like a game!  You have to trash your credit in order to get them to listen.

Of course, they would never tell you to behave this way officially - but it's one of the tricks to get the deal through - and it is ridiculous!

Stay warm, both of you.

Pat - BEARS WIN (sorry!)

DEAN & DEAN'S TEAM CHICAGO

Posted by Dean Moss, Dean's Team Chicago IL Real Estate Team (Dean's Team - Keller Williams Realty Partners Chicago IL) almost 10 years ago

I worked with a couple who have a first and a second mortgage along with other debt.  They had a great credit score and were offered more and more credit.  Then their job situation changed drastically making it impossible to meet their obligations.  Their lenders weren't cooperative in trying to work on a short sale and then after many attempts to get through on the Loan Modification help lines they were told that they didn't qualify, so they have now decided that bankruptcy is their only option and have set those wheels in motion.  It was very frustrating trying to help them find answers and work things out without going to bankruptcy.

Posted by Connie Herbert (Canyon Trail Realty) almost 10 years ago

I too have seen that loan modifications are truly elusive and not readily available for those in need.

Posted by Vickie Nagy, Vickie Jean the Palm Springs Condo Queen (Coldwell Banker Residential Real Estate) almost 10 years ago

Dean, my husband was also watching the Bears vs. Packers game:  wearing his CHEESE-HEAD!  Needless to say he was disappointed...

Regarding loan mods, we all the know some of these lenders are STUPID, very few using any common sense.  After all, with this mess they created, I would be SHOCKED if they suddenly figured out how to run a business...  With good customer service and a good business model for financial profitability!  Now that's a thought, isn't it!!!

Maybe the borrowers should seek legal advice rather than trying to go up against these enormous DUMB corporations.  Yes the borrowers CAN fight back BUT they need more power than just a do-it-yourself loan mod.

Posted by Regina P. Brown, M.B.A., Broker, Instructor (MBA Broker Consultants) almost 10 years ago

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