I’m not in the loan business, so I will admit I don’t have “expertise” on this topic. However, as a real estate agent, and homeowner for over 30 years, some advice that is being given today just doesn’t make sense to me, and it might really hurt you if you buy into it.
It works like this. A homeowner discovers their property is no longer worth what they paid for it based on resale information they receive for similar homes. They get frustrated, and feel they are wasting their money. Maybe they had a rate adjustment, and a higher payment, and they are frustrated. So what should they do ?
They start following up on some of the emails and ads they see for loan modifications. They are told to stop making their payments, and the lender will be forced to lower the interest rate and the loan balance. So, they do this, and happily spend the money on luxuries they just don’t need.
This advice just doesn’t make sense to me. First, it would appear that the person giving the advice gets paid up front, so they have no reward for helping you to succeed with a better financing plan. Secondly, I don’t see why this is an incentive for a lender to suddenly cut you a deal. In fact, you risk a rather quick foreclosure, and possibly a default judgement for the difference between what you owe and what the bank receives when selling the property. In addition, you risk a destroyed credit rating for 10 years. You could be out of the market for purchasing a new home, and have difficulty with renting. You will pay higher interest for any loans you might get to pay for cars and other large purchases, and if you are job seeking, you may have problems with a bad credit rating.
Certainly having a loan modified is important. Banks may well adjust interest rates, especially if you have an adjustable mortgage. It is less likely they can adjust how much you owe on a loan because they actually paid that money to someone else when you signed the contract. It is not as likely they can make you a gift of their investor’s funds.
If you need to make changes on your loan, your best results will come when you work with the bank. Making your payments shows your good faith. Emails, and even phone calls, just don’t get a timely response. If you have a local branch of the bank that handled the loan, pay them a visit. Ask for help from the manager or loan officer. Be open about your difficulty, and present a cooperative, but passionate, plea for help. Be sure to follow up quickly to get a progress report.
If you just don’t get anywhere, stick with it. The federal government has a new program, and more will be coming. Also, talk to the person who originated the loan. Remember, if they are now “selling” loan modifications, be very, very cautious.
For more information, here are some helpful links:
Orange County Home Ownership Preservation Collaborative
CA Consumer Home Mortgage Information
CA Department of Real Estate Consumer Alert
This article will hopefully get you to think about your options. More information will be coming in future posts. Share what you think below.
