Loan modification has become the solution of choice for many people facing unaffordable mortgages and foreclosures. In response, banks and lenders have attempted to discourage borrowers from obtaining legal representation by sponsoring aggressive propaganda campaigns directed at homeowners. As the market for mortgage assistance grows and lenders continue their efforts to confuse homeowners, many homeowners enter loan modifications with serious misconceptions and end up making uninformed decisions. So, how do you distinguish fact from fiction? Can a loan modification really stop a foreclosure and solve all of your mortgage problems? This guide provides real answers to some of the most common myths about loan modification.
Fiction #1: You can do it on your own.
FACT: Technically, you can, but it takes a lot more work and the results probably won’t be the same. In short, it is not recommended. Banks and lenders would like nothing better than for you to attempt a modification yourself. They know that they can wear you down with frustration and uncertainty until you accept their terms; usually a “modification” that benefits the lender in the long run and does not provide the borrower with a satisfactory long term solution. These days, the Loss Mitigation department is a bank’s busiest department. A typical loss mitigation officer is required to handle as many as 800 cases at a time. These people are overwhelmed and simply do not have time to deal with your problem adequately. It is not uncommon to be passed from one agent to another and never get any real answers. Many homeowners have been left with the impression that they are in the process of working out a modification with their bank, only to find that their house has been sold out from under them during that process? A loan modification attorney, on the other hand, communicates directly with the decision makers at your lender, and uses significant leverage to get your file to the” top of the stack”. When a lawyer represents you, the calls get returned faster, you get more personalized service, and you gain the capability to actually obtain the type of loan you need.
Fiction #2: Your lender would rather foreclose than modify your loan.
FACT: In some cases, foreclosure is the more cost effective option. However, according to a recent Tower Group study, lenders lose substantial money with every foreclosure and are consequently required to increase their reserves. The banks already have the liability of owning too many foreclosed properties and have too many non-performing loans on their books. Accordingly, lenders would much prefer to adjust your mortgage to something affordable and convert your loan into a performing asset.Don’t be intimidated by threats of foreclosure!
Fiction #3: You can’t stop the foreclosure process.
FACT: It is true that your chances diminish the longer you wait. However, until your home is actually sold at auction, no one can force you to leave your home. A loan modification can stop the process as close as seven days before the sale date. This buys you enough time to get back on your feet while your lawyers work out a lasting solution with your lender. Of course, it is better if you don’t wait until the last minute.
Fiction #4: It’s an instant solution to mortgage problems.
FACT: Loan modifications really work, but they take time and the right expertise. Depending on how far behind you are, the process can take anywhere from one to three months. However, since the modification process stops the foreclosure process, you won’t have to worry about losing your home while the modification is in process. If you submit your paperwork on time and cooperate with your lawyer, you can speed up the process and avoid complications.
Fiction #5: You need good credit to qualify.
FACT: Standard requirements vary from lender to lender, but the bottom line is that the loan modification should make financial sense to your bank. The most important factor is verifiable income that demonstrates your ability to maintain the payments going forward.Your credit rating doesn’t have anything to do with it.Your lender will want proof that falling behind was a temporary snag, and that you can afford to stay on track if they do modify your loan. This means you have to have a verifiable source of income and a valid case of hardship. You don’t need to disclose your credit rating in most cases.
Fiction #6: Loan Modification companies are scams. They take your money, but don’t do anything.
FACT: In any business there are always some unscrupulous people, but you can find legitimate organizations that will help you. The important idea in loan modification is to work only with an experienced and knowledgeable law firm or attorney who has a track record of success. You should thoroughly investigate the background of anyone who claims to be able to do a “loan modification” before you pay for services. The Federal Trade Commission (FTC) strictly prohibits any non-attorney organization from representing distressed homeowners.