HAMP’s loan modification program seems to be finally speeding up its conversion rate from trial loan modifications to converted modifications. However, the 4 million troubled homeowners targeted by the program are not even close to receiving the help they need.
The debate continues on exactly how much responsibility the Government has towards troubled homeowners. Should they simply shoulder their responsibility, lose their home and start from scratch?
One, obviously upset, commentator had this to say about the issue:
How many people seeking home loan modifications used their home as their own personal ATM’S? How many people who are seeking loan modifications bought homes using an interest only ARM, and purchased a home they could not afford? How many people “fudged” their mortgage apps in order to qualify? I have no sympathy for them. I do feel sorry for those who were really victims of poor mortgages, and job loss. I think more people made poor personal choices and want others to bear the responsibility for their poor financial choices.(Quoted from a comment on the RGJ.com, Reno Gazette Journal online edition 31/1/2010)
This opinion is by no means unique. Many, especially those that didn’t buy a home because they felt they couldn’t afford it, feel people are being unfairly shielded from their own bad financial decisions.
However , the distress and misery the current credit crisis has created does make most of us feel the Government has some responsibility to stabilize the situation just as it did when the banks were the ones that needed bailing out.
Sadly, even those that do receive some kind of “financial help” on their mortgage are often just taken advantage of. The media is full of cases of troubled homeowners that qualify for a loan modification just to see their monthly mortgage payments are more expensive and they are deeper in debt and deeper underwater on their mortgage.
The Government has issued some new guidelines that put more pressure on servicers and lenders to reduce monthly payments by extending the loan term to 30 years and dropping the interest rate to current low levels of 2%-3% for a fixed 30 year loan. Unfortunately, servicers were often simply picking up the months the borrowers were behind on and loading them on the mortgage, without actually modifying the loans in any useful way for the homeowner.
The lessons we can learn from these situations are important although often of little value for the homeowners that are suffering the consequences of poor financial judgment and unfair lenders.
Lesson 1.) Do not spend your life savings paying a loan modification company to manage your application. If you do decide to hire such a company check their credentials and find out their history.
Lesson 2.) Never pay for any services before they have been carried out. This is not only illegal in most states it is also rather stupid. Would you pay a day worker on a farm before he started?
Lesson 3.) Contact the HAMP free counseling services before you are committed to a loan. Even if you later decide to go a different route you will at least have one opinion you can use as a benchmark. Contact a lawyer and ask him what your options are. Is there any way to fight the legality of the loan? Do you have any leverage on your bank?
Lesson 4.) Loan Modifications are not the holy grail of mortgage woes, they are not for everyone and they don’t always improve your mortgage payments all that much. Even though it will severely affect your credit score foreclosures and short sales are often a way to have a fresh start and are sometimes more practical than hanging on to a sinking mortgage. They are, obviously, not an ideal option but sometimes they are best of two evils.
Last 3 posts by Andrew
- Loan Modification Tips: How to Choose the Better Loan? - April 29th, 2010
- Top 5 Loan Modification Tips to Avoid Foreclosure - April 24th, 2010
- Banker's Choose not to Swallow Obama's Loan Modification Bitter Pill - April 18th, 2010
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