Can You Get a Loan Modification From Your Lender?
The message to troubled homeowners has been: Call your lender. You may be able to work something out. Maybe you’ll get a loan modification . They will work with you, news reports say.
A survey by Moody’s found that most subprime-loan servicers this year had modified only about 1 percent of their adjustable-rate mortgages (ARMs) that had reset to higher rates by the end of July. Servicers, which may or may not be the original lender, collect mortgage payments and deal with defaults and foreclosures.
That means homeowners have a 1 in a 100 chance to get help from their lender!
The only reason we are in this mess is because of bad lending practices. PLAIN AND SIMPLE! Mortgages that were packaged and sold to anyone who could breathe on glass and make it fog was approved. Sickening loans like the 100% loan to value, stated income and stated assets down to a 600 FICO score and this is for a W-2 wage earner. These were the loans that are out there right now and the loans that were “once” offered by these lenders that are either bankrupt or on their way to financial ruin.
And they only modified 1% of these toxic mortgages. This is a complete absolute joke!
Here is an excerpt from a CNN Money article explaining why lenders are not modifying loans:
” Swamped lenders. Lenders have been bombarded with requests for modifications and aren’t adequately staffed to handle them, according to Mortgage Bankers Association spokesman John Mechem, who added that lenders are in the process of hiring more people.
Borrowers in too deep. Loan modifications don’t make sense for some borrowers since they’ve already had trouble handling their mortgages before their rates reset higher. In those cases, Sandberg said, modifications “just stretch out the problem.”
For those borrowers, a credit counselor might recommend they ask their bank to agree to
a short sale in which the bank will forgive the debt not covered by the sale of their home. Or they might pursue a deed-in-lieu-of-foreclosure – whereby they sign over the deed of their house to the lender and walk away without further obligation. If they choose this option, they may be able to minimize damage to their credit if they ask the lender to remove the negative reference on their credit report, according to legal information publisher NOLO.
The “Mother, may I?” factor. Servicers who get loans in securitized bundles – say 3,000 to 5,000 loans per deal – may be restricted in how many loans they may modify without seeking the permission of investors in those securities, said Larry Litton, president of Litton Loan Servicing. A 5 percent cap on the amount of loans that may be modified is typical.
What’s more, the servicers’ contracts with investors may have rules governing when modifications may be made.
The “Are you my mother?” factor. Sometimes no one knows who to ask for permission to modify a loan. “The loans have been sliced and diced so many times, that the owners cannot be found,” said Center for Responsible Lending senior vice president Eric Stein, in written Congressional testimony delivered this week.
No-shows. There has been a push by lenders to contact at-risk borrowers earlier and more frequently. But the borrowers are hesitant. Litton said that for every six letters he sends to at-risk borrowers, he might get one response.
In some cases, if borrowers overstated their income on their original loan application to buy more home than they could afford, they’re reluctant to admit that to the servicer since lying on a loan is illegal, said Allen Hardester, a mortgage consultant in Maryland. “
What’s this mean to the homeowner? It means as of now, you are still up the creek without a paddle. Stay tuned as I keep following the loan modification news very closely.