Loan Modification Company Vs DIY Modification
After months of falling foreclosure rates filings are on the rise again. This comes as another wave of homeowners see their rate on their ARM (adjustable rate mortgages) rise and reset to higher monthly payment amounts at the end of last year. This is primarily due to Option Arm Loans where the interest of the loan is able to be deferred until a later date. That date for an unusually high number of homeowners came due at the end of last year and the beginning of this year.
Typically these type of loans have a cap built in to protect borrowers from getting stuck with an unreasonable payment amount however the downward spiraling of home values has pushed the loans to their cap sooner than expected. The cap allows the principal to accrue to a percentage of a homes value, in many cases this is 120%. Due to the current dip in home values the balances on these loans have already reached the max, forcing homeowners to pay the principal & interest payments they weren’t expecting to pay for years – payments which many cannot afford to make.
As we are all too aware job losses are still on the rise and there is no clear sign that the vicious cycle is coming to an end any time soon. As part of the new efforts put forth by the Obama administration new opportunities are available for homeowners who find themselves in this situation. Borrowers who wanted to refinance in the past but could not qualify because their properties have lost value may be able to get a new more affordable rate meaning a lower payment.
There are a few indicators to consider when determining if you are eligible for this type of loan re-modification. First, is your loan held or guaranteed by Fannie Mae or Freddie Mac? Second, is your property a primary residence? Third, is your first loan amount equal to or less than 105% of your current property value? If you can answer yes to all 3 of these indicators then you are one step closer to getting off the track of foreclosure.
Re-negotiating your loan directly with the bank can be a daunting task at best. Imagine how much the bank does NOT want to loose money and then combine that fact with the reality that they are the ones that “set the rules” for what rate they will offer in the re-negotiation. You are clearly the underdog in this match.
Reportedly more and more homeowners contact non-profit loan modification companies after hitting the wall trying to negotiate with banks directly. Contacting a non-profit company to assist with the negotiations has proven to be a benefit to thousands of borrowers to date. The non-profit already has a relationship with the banks and experience re-negotiating loans for struggling homeowners. They know how low the bank can go and what rate other struggling homeowners in similar scenarios have received. Non-profit companies also know the logistics of the new government plans, such as HASP, Making Home Affordable, etc. and finding the right plan for you even if you don’t know what plan you want to utilize, if one is available.
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Having the correct process in place alwasy helps, so I think going with a company can be a lot safer bet
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Very interesting article. I hope the Obama plan helps to keep people out of forclosures. These financial details are very confusing for most of us so knowing that there are non-profit loan modification companies out there is a great help
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It sounds complicated to me…I think I would probably not try to do it myself. A well-written article….
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This is definitely an important topic right now. One of the things on my to do list is to contact my lender. I know several people are upside down on their house dept to equity right now. That always makes it difficult when seeking financing, doesn’t it?
A home foreclosure is a devastating event in any homeowners life. I know because I went through one myself. If there is a way to prevent it. Great. More homeowners need to know about it. Thanks.
larryj
I can’t imagine how hard it must be to go through a home foreclosure. I hope this system works…
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Will lenders work with people who are not in foreclosure or behind in payments, but just looking for a lower payment at this time? I know several people where I work are all upside down on houses that they recently purchased and are talking to their existing lenders. What are their chances for success in getting lower payments or interest without having to refinance?
Oh Ya !! I am totally agree with you. I think They have little bit different with each other but both are good .
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Loan modification is similar to debt settlement with regards to it being a DYI process. You just have to be organized, committed and disciplined. Loan mod and debt settlement companies charge ridiculous fees and they are not “negotiating” for you. Any bank who modifies a loan has a formula generally following what the FDIC laid out to IndyMac back in late 2008. It’s pretty standard:
1) Rate reduction between 3% – 4% for 5 years
2) Rate increase another full point in year 5
3) Rate increase to a cap of anywhere from 4.75% to 5.50%
That’s about it. Saves homeowners about 20% for 6 years or so. Think your salary will increase 20% in 6 years? Better hope so or you just right back where you started and there are no guarantees real estate will have significantly rebounded by then.