The million dollar question millions of Americans are asking themselves is “should I walk away from my underwater mortgage?
The situation is so dire that according to Moody’s Economy.com 17.4 million homes will be underwater by the end of 2010.
That is worth reading again: By the end of 2010 17.4 million homes might be worth less than the value of their mortgage.
This presents homeowners with a dilemma. Should they continue making big monthly payments on a home that might never be worth what is was bought for, especially when there are cheaper rentals in the same area?
The answer to that question is not easy; there are many factors to take into consideration before deciding if a “strategic default” makes economic sense.
However many homeowners don’t even consider it an option out of fear and guilt. The moral argument is that when you signed your mortgage you gave your word you would pay for it, so it is your responsibility to stick to your word. Banks like that argument, and most of us can see the logic in wanting to keep your word, that your yes mean yes. However a mortgage is a business agreement and it is not as simple as all that.
When you sign a mortgage agreement you are not accepting charity, a display of trust or blind faith from your loving bank manager. You are entering a business agreement where you agree to pay back the money you borrow with interest. The agreement you sign clearly states that if you don’t pay your mortgage the lender will receive the loan’s collateral in compensation. The bank is required by law to carry out due diligence when assessing the price of the house is fair and that you are capable of paying the mortgage payments.
So when you walk away from your mortgage you are not lying you are simply using an option included in the mortgage, an option you feel is more financially sound.
However, others don’t walk away from a mortgage not because of morals but out of fear the bank will go for their other assets, like a car, a second home or their savings, in an effort to cover the losses of the underwater mortgage.
This is a legitimate concern, but it depends in which State you live in. If you are fortunate enough to live in a no-recourse state like California or North Caroline you have nothing to worry about. Banks cannot claw at your other assets to cover the whole you left in their real estate portfolio. However if you live in a State that has recourses there is a higher risk.
However, lawsuits are rare because they are so expensive and judges tend to empathize with the troubled homeowner before shedding tears for multibillion corporations.
Nevertheless, if you are considering walking away from your underwater mortgage one of the first things you want to find out is if you live in a recourse or no-recourse State.
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Finding a loan modification you can live with and getting your bank to accept it is no easy task. It requires a lot of time, large amounts of patience and determination.
Banks are swamped with more loan modifications than they have ever had to handle and the dilemma of some loan modifications costing them more money than they are worth. Bringing all kinds of issues, like why would a bank provide help to a borrower through a loan modification if it is more cost effective to foreclose the mortgage?
The complexities behind a loan modification can be scary and frustrating but if you jump through the hoops and stick to your guns you have a good chance of reducing your monthly bills and even saving some money.
To get us started lets answer some basic questions most borrowers that are looking for a loan modification ask?
Do I need to have a job to get a loan modification?
Not necessarily. You can apply for a loan modification even if you don´t have a job as long as you can prove you can pay for the modified mortgage payments in some way or are likely to be able to do so soon. The details of your case will condition what response you get. For instance if you have recently been sacked or laid off from a well paid job and have the skills to get one soon you are more likely to get a loan modification than if you have been unemployed for a year.
Do you have to pay someone to manage your loan modification application?
Not at all. The government is backing a variety of loan modification programs that are designed to incentivize banks and service providers to supply sustainable loan modifications. Government websites and helplines are in place to guide you through the mortgage modification process.
It is true that loan modification consultants can provide you specialized advice on how to fill in applications to maximize your chances of being approved but you can do just as well with a little patience and by reading the instructions carefully.
If you do decide to hire someone make sure they are not one of the many con artists and scammers that are so common now. Stay clear from companies that guarantee successful applications and ask for upfront fees. There is no way to guarantee a bank will accept a loan modification and it is illegal to pay for services that have not been provided.
How do you get the ball rolling?
Call your bank and ask to be put through to the mitigation department. You will then be asked to jump through a few hundred loops and explain your situation. It is a good idea to find out first what paperwork you need and make sure it is all correct before starting your application process.
What kind of information do you need?
You will need W-2s from your employer, a pay sub and details on your savings and investments. You will then be asked to provide an income to expenses ratio and basic paperwork to support your claims. Don´t forget to be honest, any discrepancy that is picked up by the service provider will cause your application to be dropped.
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