Many Americans feel frustrated and upset after trying to negotiate with their lenders to get a loan modification on their personal mortgage. Whatever the reason for your reverse mortgage situation, you face foreclosure from your lender if the mortgage is not refinanced or a principal reduction is not granted. What are the key ingredients every homeowner should know about a loan modification?
A loan modification is, in the simplest terms, a refinancing of an existing mortgage. If there is more than one outstanding mortgage on the property, there will need to be two modifications depending on whether the property has equity after the second or junior mortgage is modified.
For example, if a house has two mortgages of $80,000 and $20,000 and the property is worth $90,000 if it sells in today’s market, the holder of the first mortgage will be reluctant to make a modification and the holder of the second mortgage will not be either. so interested in doing a loan modification unless the homeowner is in dire straits that cause them to lose the property to foreclosure. A foreclosure would nullify the second mortgage and cause that lender a total loss.
If the market value of the prior property were instead $50,000, the primary or first mortgage holder would be at risk of a substantial loss on their original loan and the junior note holder would lose their entire loan amount if the property is executed. Unfortunately for the junior note holder, the senior note holder is not concerned about the senior note holder getting their money back, unless both notes are from the same lender.
To add insult to injury, historically, lenders don’t want to initiate loan modification discussions unless the homeowner is behind on their mortgage payments. This is changing and approaching a lender about a modification well before there is a financial crisis is highly recommended. Some states at the epicenter of foreclosures have passed laws that require lenders to negotiate before they can file a foreclosure action. However, the net results have been no different for homeowners, as lenders continue to be reluctant to provide substantial loan relief.
Homeowners should call their lenders and request a Loan Modification Kit. This kit will contain the necessary documents to process the modification request. Whether the homeowner or someone acting on the homeowner’s behalf negotiates the modification, the package required by the lender is the same. This is one of the reasons that advocacy groups have encouraged homeowners to do the work themselves and save thousands of dollars in fees from attorneys or people selling this service.
The essential parts of the package that the lender wants to see are the hardship letter and the homeowner’s financial statement. Lenders don’t really care about the homeowner’s hardship, but they do require it and they may seem sympathetic, but in the final analysis, they want to recover as much of their loan amount as possible.
The financial statement is a different matter, as it shows where the assets, if any, are that the owner still owns. These include other real estate, cash in the bank, stocks and bonds, and just about anything the lender can sell and then collect a judgment amount or have the homeowner liquidate to bring a loan modification to a closing. Keep this in mind if you are filling out a Financial Statement for a loan modification, and since it is for a loan, falsifying this information is a very serious legal problem.
Talking to loan modification firms that are doing thousands of deals for homeowners, less than 1% actually get principal reductions. Most of these are with smaller regional lenders. Because of this, a homeowner should expect to be offered terms that lower their monthly payments for a period of time due to an interest rate reduction, or a combination of an interest rate reduction and a mortgage extension to 40 years. In either case, the homeowner will get temporary relief but will ultimately pay more than the original amount of their mortgage.
Because this temporary payment relief is a quick fix to a long-term problem, many homeowners move into strategic default after a few months or years of their modifications. A strategic default is when the homeowner decides that they have had enough and will never get a positive position on their mortgage against market value and simply stop paying their mortgage and go into foreclosure. He can mount a foreclosure defense or just walk away. If you are considering doing this because it is financially the best solution to your mortgage problem, seek legal advice before doing so to preserve your legal rights.
As a guide to what the modified loan payment should be, simply take your family’s current combined gross income and multiply it by 30%. So if a couple’s monthly gross income is $4,000, the expected loan modification payment should be in the area of $1,200 per month. Typically, the lender will change the mortgage interest rate to 2% or less to accommodate this payment, but will charge more as each year passes, ultimately recouping their “loss” the longer the homeowner stays. in his house.
In short, many city, county or state programs are available to homeowners at no cost to modify their loans. These programs should be thoroughly researched before choosing to pay for expensive services that may achieve the same end. The homeowner has to be proactive in this process or the lender will proceed to foreclose on their home. Homeowners should explore all options, including a strategic default, but do it as quickly as possible and remember that you must make this decision or a lender will make decisions that are not in your best interest.