Why Are Loan Modifications So Difficult
Why Are Loan Modifications So Difficult?
Just imagine this. You have fallen behind on your mortgage payments. Something tough happened, maybe you lost your job or worse maybe you lost a loved one. So, you hit 120 days of nonpayment. At this point the bank calls you and asks you to provide proof that you can continue with the payments. Once they see that your income can continue to support the mortgage, they tell you they will reinstate the mortgage and tack the last 4 months onto the end. They ask you to pay the same amount and everything works out great. That’s the expectation we have about loan modifications, but the reality is this situation almost never plays out.
Very rarely will the bank simply want to reinstate a loan like this, although it does happen on occasion. However, most of the time a modification looks like this. You reach 120 days of nonpayment, YOU call the bank, YOU ask for a loan modification, they ask you for a letter of hardship explaining why your circumstances happened along with a laundry list of financial records. They then review you for around 90 days all the while your debt continues to rack up. They get back to you with a yes if you are lucky, but what are their terms. Usually something astronomically high with the highest legal interest rate. Additionally, they will add on all the debts they’ve encountered in your foreclosure.
When a bank starts the foreclosure process, they must pay an attorney monthly to hold the file and act as an intermediary, they pay someone to do occupancy checks on the property, they pay a referee to oversee the auction timeline. In addition, if you are facing foreclosure within the first 10 years of an average mortgage, you haven’t even started paying the principal. You are paying only the taxes interest and insurance during this time so expect the base payment to be the full mortgage amount, plus all these extras. The longer you wait the more it adds up.
Remember when I said, “if you got approved, you’d be lucky?” That’s because if you received a no, things are probably going to get more expensive. When the bank tells you no are you just going to stop pursuing the action? No, you’re probably going to hire an attorney to do the modification for you thinking they can do more, they are attorneys after all, right? Wrong! Attorneys are known for charging you $4,000 – $6,000 upfront and then a monthly fee that can range from $400-$1000 and sometimes more. They then drag their feet to get the most money out of you, often not caring if you get the modification or not.
Now to answer your question, why are loan modifications so difficult? The difficulty isn’t in the modification itself. Instead loan modifications are so difficult because the proper team isn’t doing one for you. Do keep in mind that a loan mod may not be your best option. Let’s say you get an approval, you were paying $1,200 a month and now they want $2,400 a month. Is twice the price worth it just to stay in that house? You would literally be better off buying 2 houses and renting one out for profit.
Always weight out all your options to determine what best suits your situation and never pay someone to do a loan mod for you.