In short, no, but like so much of life, it’s not that simple. The reasons why attaining a loan modification is a bad idea for struggling homeowners are tied into the banks and mortgage companies willingness to work with customers, the potential for fraud and our own psychological tendencies. To explain, let’s examine the definition of a loan modification.
A loan modification is a change in the original terms of the mortgage agreement between the lender and the borrower. When a bank or mortgage company grants a loan modification, they can do any of the following:
• Reduce the interest rate of the loan
• Bring loan current and move delinquent payments to the end of the loan term
• Make monthly payment a percentage of your household earnings
Why loan modifications may not work?
According to bank and mortgage experts, banks are less likely to grant loan modifications because the fees charged and the potential to gain a more reliable mortgage payer makes it more profitable to let houses go into foreclosure.
Loan modification scams have become prevalent in recent years as well. So called “loan modification” companies approach struggling homeowners, promising that they can work with the bank to adjust terms of their loan. While some companies are legitimate, some aren’t. Here are a couple of warning signs:
• The company tells you to make mortgage payments to someone other than the bank or mortgage company.
• You are asked to sign over the deed of your home.
Lastly, 47 percent of delinquent homeowners that received a loan modification have still had their homes fall into foreclosure. If the homeowner has a hardship, such as family illness or employment, changing the terms of their loan won’t necessarily help.
If you are a homeowner faced with a drastic decision in regards to your home, consider all your options, including a short sale. Also, consider finding a real estate attorney. Stephen K. Hatchey, a Florida short sales attorney, can guide you through the process. To receive a free consultation, contact our offices at 813-549-0096.