A. There is no government program that forces lenders to modify your loan.
The banks have no legal obligation to change any aspect of your loan. This decision is completely voluntary. There are government programs which provide incentives for lenders to modify, but lenders still frequently make more money by foreclosing.
B. Banks have numerous incentives to drag the foreclosure process out as long as possible.
-The banks can roll “legal fees” they rack up during the modification and into your new modified loan. This means not only are you paying your previous loan balance, you are also paying additional lawyers fees, foreclosure fees, late fees, etc..
- 30% of People who fall behind on their mortgages catch back up. This means that if the banks wait long enough, they know you will borrow money from your 401(k), your credit cards, your family, or wherever else you can find it so that you can catch back up on your mortgage. This is precisely why they will not work with you until you are already months behind on your house payments, after which, your credit is already destroyed.
-Almost half of the people who do receive modifications fall behind again within 6 months. The banks know there is a good chance that any effort it puts forth to modify your loan may result in a failure. This is why they offer “trial modifications.” In my opinion, the trial modification is just another way the banks can convince you to make up to six months of additional payments before they deny your loan modification, foreclose anyway, or alternatively, you just walk away.
C. The Government’s Making Homes Affordable website urges “Beware of anyone who asks you to pay a fee in exchange for a counseling service or modification of a delinquent loan.”
There are many unscrupulous companies that popped up out of nowhere and took thousands of dollars from people under a promise to modify their loan and then just vanished with the clients money.
D. If you are determined to keep your home, you do not need a lawyer to do a loan modification.
- All of the forms for a modification are freely available at http://makinghomeaffordable.gov/requestmod.shtml
- The basic steps are fill out a request form, fill out a special tax form, gather your pay stubs, and send the documents to your mortgage lender.
-At DeLuca & Associates we believe that our clients are competent enough to do these basic tasks themselves, and we find it inappropriate that a lawyer should convince you to pay thousands of dollars (OFTEN HIDDEN IN A CHAPTER 13 BANKRUPTCY PLAN) to fill these papers out for you. All you need to do is have some patience, and a few spare copies of the documents because the bank is going to lose them several times or say they never received them. Please make sure you send copies by certified mail or a service that provides a tracking number and delivery confirmation (FedEX, UPS, etc.). This does not change our opinion that loan modifications are a poor option with an overwhelming failure rate.
- There is no magic formula for filling out the forms. You need to demonstrate your need for a modification and your future ability to pay. Many lawyers will give the impression they have a special “secret” process, or arrangement with the banking industry that makes the thousands of dollars seem more worth it.
E. Remember if you are offered a loan modification, don’t just focus on the monthly payment. Look closely at the terms of the loan.
Ask your bank, lawyer, or the loan modification company the right questions!
1) What is the new principal?
2) Does the interest rate change during the life of the loan?
3) When does the interest rate jump back up?
4) What will the payment be at the end of the 3-5 year modification period?
5) Is there a massive balloon payment after a set number of years? A balloon payment is a huge lump sum do all at one time at the end of a fixed period. In other words, your loan modification might say that your payment is reduced from $2,000 to $1,200 for ten years and then there is a balloon payment for $100,000 at the end of the ten year period. Will you have an extra hundred thousand dollars lying around at that time, or did you just delay their taking your home?
6) Is this modification solving my problems, or is it just delaying them?
Remember, most modified loans fail for a reason, they are terrible loans! DeLuca & Associates does not do loan modifications because the overwhelming majority of these new loans hurt the consumer and just give more money to greedy banks who act like they are doing you a favor by letting you pay hundreds of thousands of dollars more than your house is worth. The whole purpose of bankruptcy is a fresh start. Under title 11 of the U.S. Bankruptcy Code, this is known as rehabilitation of the Debtor.
What is the point of filing a Chapter 13 Bankruptcy, modifying your loan for five years and then after it is all over, being in the same position as when you started! The loan payment will jump back up, you won’t be able to afford it, and houses are not going to double in value in the next five years. You will still have an upside down home where you owe more than it is worth!
Remember that until you have equity in your house, all you are doing is renting. That’s correct! You are renting from the bank! Even with a modification, buyers may still have no equity in their homes for a decade or more, probably much longer in Nevada. Unless you are going to build equity in your home, you are better off walking away and buying another home down the road that is worth the same as what you are paying, if not more. The only difference between renting or paying a mortgage for a home in which you have no equity is that if the roof leaks or the air conditioner goes out in the rental, your landlord pays for it. If anything goes wrong in the home you pay the mortgage on, YOU PAY FOR IT. You also pay the homeowner’s insurance and the property taxes! Why would you incur these costs on behalf of the bank?
F. Your primary consideration when deciding whether to accept a loan modification should be, “Will this make my life better.”
A modification that leaves you living at the edge of your income is a BAD DEAL. You should never accept any deal that leaves you living paycheck to paycheck, one tragedy or accident away from total financial ruin. The goal of filing a bankruptcy is a fresh start. Don’t chain yourself to a massive pile of debt by accepting a home loan modification that doesn’t help you rebuild your life and your future wealth.
G. Is there ever a time when I should consider a loan modification?
If you have asked all of the questions listed above and are satisfied you may meet these new loan obligation terms, I would recommend a loan modification only under the following circumstances:
A) You plan on staying in the home for the next twenty years. Traditional home appreciation is roughly 3-5% annually. Right now home prices may still be declining. It may literally take 20 years for a home in Nevada (where prices have fallen more than 50%) to get back to even.
B) You may comfortably afford the payment without working two jobs or sixty hours per week while living paycheck to paycheck. Its not worth it! This is your one trip around in life. Do you really want to spend it working for the next twenty years to pay back a bank on a bad investment?
C) You love your home, your neighbors, and your neighborhood. If you’re not in love with your home, then don’t fall into the trap of making the decision personal. Too many people refuse to recognize a mistake, and then they compound the mistake over and over by spending their entire life savings, 401k’s, and retirements just not to have to accept “failure.” Surrendering a home worth half of what you owe is not a failure, it is a business decision! Some of the greatest business men in the world have filed for bankruptcy and went on to become millionaires and even billionaires. Know when to say enough is enough!