Depending on what site you read from distressed homes (underwater) range anywhere from 25% to 33% of all homes in America. Think about that for a second, that is one staggering number. Despite subtle signs of an economic recovery, many home owners are facing tough financial challenges. Their mortgage payment is taking a huge chunk out of the monthly paycheck. Can anything be done?
One option to home owners is the Loan Modification. What is a loan mod? Simply put, it is a deal you workout with your bank to attempt to lower your monthly payments; attempt being the key word here. The loan modification sounds like a great deal on paper but actually getting one is a whole different story.
Horror Story 1: Length of time to get a loan modification
The time it takes to get a loan modification is absolutely staggering. If you heard horror stories about the length of time for a short sale (which has gotten much shorter) then the time for a loan mod will amaze you. In the very recent past I have had 2 people call me. One has been working on a loan mod for 18 months and the other 2 years. It is rare that you get news of any loan mod that takes less than 6 months. And all that time you continue to feel the financial pinch.
Horror Story 2: Actually receiving a loan modification
Above I mentioned 2 people with long time periods trying to get a loan modification. The sad result was that both were turned down for a loan mod. Current statistics say that between 10% and 20% will actually make it through the process and obtain a loan modification. And during all that wait time the bank is continuing their processes of foreclosing on the home. And while you fight for an answer, the bank takes the home.
Horror Story 3: The real numbers; is it worth it
Let us say that you are in that magical 10% that receive a loan modification offer. Here is the harsh truth. Most loan mods are so small that they actually do not make a difference. Some raw numbers might help paint this picture:
$100,000 loan at 5% reduced to today’s rate of 4% will save approx $50 per month
Horror Story 4: Loan mods that actually raise your monthly payment
Now here is the real kicker. I have spoken to far too many people who fought the time fight, got a loan modification, and in the end their monthly payment went up. Yes, you read that right, their monthly payment actually went up. How is that nice kick to the…well…you know.
Where I see this most often is homes that have an interest only payment program. In a standard 30 year fully amortized loan your monthly payment pays a portion of interest and principal. In an interest only loan you are paying interest only, no principal.
When you obtain a loan modification that interest only loan goes away and you new loan is now a 30 year fully amortized loan. So, you might save a little by having your interest rate dropped but now that you have to pay principal all those savings go away. Your actual loan mod might be very small or as I said it might even increase.
Loan Modifications are not evil
Let me make one thing clear; I love loan modifications. I wish the numbers were better and that every home owner would receive a great deal. In fact, I have helped people successfully obtain a loan modification that really helped them in their financial pinch. I love it when it works.
But one thing I am is honest. I want people to know the real truth that the loan modification has many pitfalls. I want you to be able to go into the process with eyes wide open.
If you are thinking of a loan modification please give me a call or drop me a note. I would be happy to be an outside 3rd party and give you some advice. There is more that I could say about the process but I will tell you about it when you call.
Woodglen Santee real estate – Real estate for sale in Woodglen Santee CA
*Disclaimer – David Cairns is a real estate professional serving San Diego, California and is licensed by the State of California only under CA DRE lic #01890743. All information on davidcares.com is for informational purposes. Information regarding short sales, foreclosures, buying homes, selling homes or any other information is general in nature and is not intended or should be construed as legal, tax, or other advice. Every person has a unique situation; I would be happy to talk to you regarding real estate matters. You must consult a legally qualified person for advice in all other areas before taking any action. I can be contacted at david@davidcares.com
