Our Take On Mortage Modifications - Boca Raton

Are Mortgage Loan Modifications Working?

Loan mortgage modifications have recently emerged as a popular solution to the subprime lending crisis for distressed homeowners with subprime or variable interest rate loans who are in default on their mortgage payments, facing foreclosure and want to keep their homes.  Everyone is talking about mortgage modifications.  I see ads on television all the time from law firms and others who are pitching mortgage modifications. 

Anti-Fraud Legislation

Governor Crist passed Anti-Fraud Legislation on May 28, 2008, and enacted into Florida law effective October 1, 2008, entitled Statute 501.1377 (HB 643/SB 992), protecting consumers against unscrupulous companies trying to charge consumers upfront fees to do mortgage modifications and then never actually doing the work.  Homeowners need to be very careful who they are working with in this regard.  An attorney, mortgage broker or certified HUD home counselor are the most qualified and reliable professionals to help you with your mortgage modification.   Attorneys are allowed to ask for retainers/ upfront fees. Certified HUD home counselors are usually non-profit companies, and do not charge a fee for their services.  Mortgage brokers must adhere to certain rules and disclosures as well.  However, if any other mitigation company asks you for an upfront fee that should be a red flag to you.  Check their credentials carefully. 

How Mortgage Modifications Work

The lender agrees to take the amount you are in arrears and either lowers your interest rate for a set period of time while also applying the arrears and other fees to the back end of your loan, or the lender extends the term of your loan.    

The process works as follows:

You as a Boca Raton homeowner are facing foreclosure and you want to keep your home by staying in it as long as possible.  First, you consult with either a home counselor, mortgage broker or a foreclosure defense attorney.  If your advisor thinks that you qualify for a mortgage modification and it makes financial sense for you, they will have you sign an authorization letter allowing them to negotiate with your lender to save your Boca Raton home.  You must also submit a hardship letter explaining why you can no longer afford your monthly payments.  Most of the lenders also require you to submit your last two paycheck stubs, two years tax returns and W-2’s or 1099 statements and a borrower’s financial statement.  The lender is looking to make sure that you as the borrower can now afford a new payment at a reduced monthly rate. So mortgage modifications work best if you have a source of income, can afford to make the new payment and you have a variable interest rate mortgage.  If you do not have enough income left after paying your other debts, then you will not qualify for a mortgage modification.  The debt to income ratio the lender is looking for varies.  

Once your paperwork is submitted to your lender, you or your advisor will need to call the lender every day to make sure they received your paperwork.  It takes most lenders about 48 hrs to get the information into their system. Then it takes another 30 -60 days for them to assign it to a “negotiator”, whom by the way you never get to speak to in most instances.  After calling and following up every day, borrowers are either getting an offer to make ridiculously high payments to catch up on the default amount or if they are lucky, a decent offer of reduced interest and monthly payments that hopefully they can afford. You don’t have to accept the first offer from your lender. That is why it is crucial to select the best qualified person to negotiate on your behalf.  You could also negotiate yourself, but it is very time consuming, and unless you are knowledgeable on the subject, I do not recommend attempting the process on your own.  

So Are Mortgage Modifications the Solution?

Banking regulators, government officials and housing counselors all say that changing mortgages to make the monthly payments more affordable is a great way for at-risk homeowners to avoid foreclosure.  In theory that makes perfect sense.  However, according to statistics released by the Office of Controller of Currency, who reviewed loan modifications in the first and second quarters of 2008, they found that 36% of borrowers had re-defaulted by being more than 30 days past due.  After six months, the rate was close to 56%.  After eight months, the rate was approximately 58%.  So are mortgage modifications really working? You be the judge.  

Source:http://www.marketwatch.com/news/story/statistics-show-loan-modification-not/story.aspx?guid=%7B00BA4109-649A-441A-906B-11B05606C3FD%7D