There are things you need to be careful you choose right, your spouse, your health insurance, your home and mortgage. If you got the wrong wife, husband or health insurance there’s not much help to be found here.
However if you are struggling to pay your mortgage, the value of your home has dropped to the basement or your bank is ignoring your calls then there might be something we can help with.
In a perfect world loan modifications would not be necessary. We would get things right the first time. Inflation wouldn’t cheapen money, workers wouldn’t lose their jobs, houses wouldn’t lose value and we would all have perfect credit rating. That of course is not the real world. Unfortunately those or only a few of the many things that can go wrong when owning a home and a mortgage.
Loan Modifications seek to remedy some of the problems that can sour a mortgage and make it impossible for home owners to pay monthly payments. Loan Modifications are not a financial holy grail that can solve all problems; it is a tool that if used wisely can help some borrowers in difficulties.
The U.S government has made an effort to make loan modifications available to as many home owners as possible by creating incentives both for service providers (lenders) and home owners (borrowers). The incentives include bonuses for paying your mortgage on time and for borrowers and cash per loan modification for banks and service providers.
However even the Obama Administration has made it clear that loan modifications are not for everyone. They are not for home owners that have no chance of being able to meet their financial responsibilities. Foreclosure is the only way for them. Loan Modifications are for those that are going through hardship but can find a solution with the right kind of help.
You will hear a lot of information on loan modification and how to take advantage of the opportunities the Government is offering we are going to look at three things you very probably don’t want to do.
Pay Someone To Do The Loan Modification For You.
It might seem counterintuitive to say it is best not to get a professional to do it for you and some loan modification consultants do provide a good service. However loan modifications are not that complex you can’t do it yourself. Loan modifications can be very expensive if you get a third party to do them for you. Besides there are so many scammers out there it could spell disaster if you choose the wrong company.
Ignore Your Bank Or Service Provider
Whether you choose to do your Loan Modification by yourself or get a “professional” it always pays to contact your bank and explain your situation before you become delinquent on your mortgage. It might seem strange but banks like to be told when they aren’t going to be paid. Negotiating a loan modification or any other option is much easier if you are still not behind in your payments.
Fall Into A Spiral Of Debt
Many actually see loan modifications as a way to get some extra cash or to allow them to borrow more. The main problem people have with their debt is not that their mortgages are too high but that they have so many other debts to pay. Learning how to save and avoid unnecessary debt is one of the most valuable financial lessons we can learn and that so many of us have to learn the hard way.
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Home Loan Refinancing Anti-Foreclosure Effort Results Disclosed
A lot has been said of the efforts of the Obama administration to curve the drop in the credit and real estate sector. You can love it or hate it but you can’t argue that an effort is being made. Our previous blogs discussed the changes in the eligibility requirements to include more borrowers but have they been enough?
What are the results of this broad effort to alleviate those hit the hardest by the crises and that are in risk of losing their homes?
The quick answer is that we don’t really know. The White House guesstimates that “over 50,000” at risk loans have been refinanced so that homeowners can keep their homes. The exact number is not available because a tracking system for refinanced mortgages is still to be set up.
This has not stopped the Treasury from “predicting” that 20,000 bad loans will be “saved” ever y week by September. That sounds great and will be a great help for many families. However if analysts’ predictions are correct seven million homes will foreclose this year and next year. Of these foreclosures 4.5 million are expected to be distress sales. If this were to really happen it would further drag the Real Estate sector, dropping prices and increasing inflation. When you are talking about 7 million foreclosures a year, 20,000 “rescues” a week (c. million a year) does not sound that great, especially when a lot of the worst cases will not be covered by the current plan.
The demand for mortgage refinancing relief has been so great that banks claim to struggle to meet demand. However there is no real incentive for Banks to go out of their way to speed up things. Current incentives measures provide up to $75 billion to banks to refinance mortgages without any penalty if loans are not modified. The mortgage modifications have focused on monthly payments reduction decreasing the monthly cost of a mortgage but making it a much more expensive product. Banks are lapping it up as these loans are also backed by Fannie and Freddie making it a win-win market for them.
These monthly payment reduction schemes sound great in principal but do not tackle the issue of home equity. As monthly payments drop the mortgage principal (amount borrowed) increases reducing further the equity (difference between the value of the home and the money owed on it). This reduces incentives to keep up to date with payments as the chance of being able to sell at a profit drop.
A potentially more useful measure would be to help reduce the principal of mortgages for borrowers in trouble to encourage monthly payments and avoiding foreclosure. If the current rise in foreclosures is not stopped it will create it’s own domino effect dragging prices down and further increasing inflation.
The effort to stop the crisis and impending doom some analysts predict this have been huge, the big question is have they or will they be enough to actually stop it from happening.
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