Mortgage Modification: Time is Not on Your Side

If you can no longer make your mortgage payments but you don’t want to give up your house, a loan modification may be a viable solution. Under the government’s Home Affordable Modification Program or HAMP, you can request your lender to restructure your loan so you’ll end up paying smaller monthly installments.

Mortgage Modification Pitfalls

If you’re having problems paying your mortgage bills, a load modification might sound like a really great idea. However, homeowners should be aware that mortgage modification is tricky business dotted with many potential pitfalls.

First, while laws have been changed to force lenders to respond to homeowners within 10 days after they put in a modification request and to provide them with an answer within 30 days, your lender may rule your application incomplete and stretch out the process. Thankfully, a law preventing dual-tracking—the act of processing a foreclosure while a loan modification request is pending—has been put in place to protect homeowners.

Finalize Your Modification before Bankruptcy

Foresight is an important skill that every borrower should learn. No matter what kind of loan you enter into, the chance of defaulting is always real, and the ability to foresee whether the possibility that that might happen is high can help you plan ahead and take concrete steps to mitigate your loses.

The Hidden Peril of Mortgage Modification

When you’re strapped for cash to pay off monthly mortgage payments, a loan modification usually sounds like a great idea. However, especially if you are currently at risk of foreclosure, applying for a mortgage modification might expose you to a hidden peril that could put your ability to keep the home in jeopardy.

Called dual tracking, the problem occurs when your lender is in the process of pursuing a foreclosure case against you while your mortgage modification is pending. This caused a lot of problems following the mortgage crisis when homeowners facing foreclosure were offered loan modifications—only to have their homes taken away from them when the foreclosure process finished first.

Fortunately for homeowners, the Consumer Financial Protection Bureau issued new mortgage servicing rules that came into effect on January 10, 2014, effectively banning dual tracking.

The issue, however, that makes dual tracking an ongoing problem is that bankers, lenders, and mortgage servicers currently advise borrowers not to contact an attorney before applying for a mortgage modification. While the banks’ explanation that this allows borrowers to save money is justified, this can put borrowers at risk of losing their homes if their mortgage servicer violates the law by dual tracking.

The Negative Impact of Foreclosures

Economic forecasts typically include foreclosure rates and their impact on the housing market. After all, foreclosures affect not only the homeowner but also the entire neighborhood and, consequently, the local government and the economy as a whole.

Foreclosures hurt housing values

Several studies reveal that foreclosures have an adverse effect on local property values, especially during a recession. With every abandoned home, the risks of vandalism, crime, and blight increase. The Center for Responsible Lending estimates that each foreclosure reduces home values in a neighborhood by about $70,000.

Foreclosures hurt local governments

Likewise, foreclosures exert negative impact on local governments due to a decline in tax revenues. Property tax comprises at least two-thirds of the revenues collected by most local governments, which is directly impacted by increase in foreclosures and declines in home prices. Additionally, sales taxes—another major source of revenue for local governments—suffer as a result of the reduction in consumer spending brought about by foreclosures.

Foreclosures hurt the larger economy

Declining home values affect both investment in new construction and consumer spending. The bad news is that these two factors are major drivers of unemployment. In turn, this increase in unemployment leads to a vicious cycle that precipitates subsequent foreclosures as well as further declines in investment and spending.

When Mortgage Modification Just Won’t Cut It

Lenders that accept mortgage modifications often tout it as fantastic way to find relief from debt. However, diving straight into mortgage modification isn’t always the best option, as the scenario below illustrates:

Suppose a debtor has two mortgages, totaling $300,000, on a house worth $187,500. On the first, he owes the lender $200,000, and on the second, $100,000.

If the debtor agrees to a mortgage modification outright, and the lender writes down the balance on the first loan to $166,000, this puts the first loan on solid ground, but the debtor himself remains $121,500 underwater. Additionally, the second loan can no longer be stripped in a bankruptcy case because the value of the house, if it was sold, would cover a portion of the second loan.

On the other hand, if the debtor files for bankruptcy, instead, this wipes out the second $100,000 loan. The debtor still remains underwater, but only to the tune of $34,000. While both scenarios will put the debtor at risk of drowning financially, the second is still far more favorable.

A third option might see the debtor filing for Chapter 13 bankruptcy. This wipes out the second loan and puts the first on a repayment plan. The debtor can then work with the lender to modify the loan, which then pulls him completely clear of any risk of drowning.

Before entering a tricky maze of mortgage modifications, consulting a bankruptcy lawyer first is always best. Otherwise, you put getting the best deal at risk.

New Law’s Effect on the Foreclosure Process

Florida has the highest rate of foreclosure among all 50 states. Given how many cases are being heard at any given time, it’s not surprising that the state also has the highest backlog of foreclosure cases. To remedy this, Governor Rick Scott signed a law in June 7, 2013 that seeks to expedite the foreclosure process.

While the law does have homeowner-friendly stipulations—lenders now face stricter documentary requirements before they can file a case—it also contains provisos that hurt people who face foreclosure. Below are the two main changes that should concern homeowners:

Show Cause Hearing

When a lender files a complaint, they may also file a request for a “show cause hearing,” wherein the homeowner must convince the courts why the foreclosure should be halted. If the request is approved, the show cause hearing can happen in as little as 20 days, limiting the amount of time a borrower can mount a defense, request forbearance, or get a loan modification.

Finality

Moving forward, all judgments on foreclosure hearings are final. Even if your home was foreclosed on fraudulent grounds, you will no longer be able to take back your property. The only recourse you have is monetary damages.

Given these new rulings, homeowners facing foreclosure must contact foreclosure attorneys immediately to increase their chances of delaying or rescinding property repossession.

Vital Things to Know About Mortgage Modification

A house is a great investment, but the economic downturn of the last decade saw many homeowners drowning in mortgage debt. That’s why in 2009, the government created the Home Affordable Modification Program (HAMP), which aims to make home payments more affordable for people who are struggling financially. 

How does this program work? Who can qualify for it? Below are the vital details you need to know:

Engaging in Mortgage Applications

For couples planning to settle down, buying a home conducive for raising a family is a necessity. However, purchasing a charming abode can be a problem especially for those who don't have enough money. Now, nobody has to settle for less; aspiring homeowners can continue their pursuit of a lovely haven by applying for mortgage loans.

There are three steps to a successful mortgage loan. First, you have to be aware of vital information regarding the property of your choice. Banks and other financial agencies require applicants to provide the purchase price and the amount of down payment for the house for sale they like.

Traditionally, mortgage loan applicants have to approach mortgage consultants in person or by phone to begin the application process. With almost everybody all over the globe having access to the Internet, starting the procedure is possible with just a few clicks. Some financial firms encourage first-time home buyers to apply for mortgage online; those who do may receive a follow-up call from mortgage consultants.

Upon getting a hold of important documents that should be scrupulously filled out, review all the items inscribed in the papers. Make sure you understand the contents of the documents to avoid confusion in the future. When everything is signed and sealed, you must deliver the papers to the financial company to avoid processing delays.