The Truth about Your Mod

I’m sorry but I just can’t stop writing about the disaster known as HAMP, which is the government sponsored loan modification program.  It seems like every day there’s a new story about how much of a disaster the loan mod program has become.  In case you aren’t familiar with loan modifications, read on…
A loan modification is when your mortgage lender agrees to permanently or temporarily lower the interest rate of your home loan so the payment becomes more affordable and, in theory, the homeowner can stay in the home without defaulting.  And while the hypothesis is solid, the loan modification program has been a credit disaster for millions of consumers.  HAMP, the government sponsored loan modification program, actually requires that homeowners pay less than what they are contractually required to pay each month just to prove that they can handle a lower monthly payment.  This is leading to severely damaged credit, millions of dollars of late fees, and foreclosures.
Here’s what your mortgage lender will not tell you about your loan modification application…

You never really needed a loan modification in the first place – Many consumers are being solicited for loan modifications as if they were being solicited for credit card offers or home equity loans. The problem is many, if not most, of the homeowners who receive these offers are still quite capable of making their monthly payment and won’t get approved for the modification because there is no hardship.  Of course the lender won’t know this until you’ve gone through the process of applying for the modification and the lender has taken the time to review your application, which is taking around 6 to 9 months in many cases.

We’re going to tell you to make less than your contractual payment, and then we’re going to report you as paying late to the credit bureaus – One of the more comical aspects of the loan modification programs is the requirement of the homeowner to make a lesser payment while the lender evaluates your loan mod application.  This is called the “trial payment period” and was never supposed to last longer than 3 months.  During this time the consumer, at the lender’s request, is breaking the terms of their promissory note by not making their contractual minimum payment.  The lenders are then reporting this to the credit bureaus as a past due account.  The longer it takes for the lender to deny or approve your application, the more late payments you’ll end up with and the more damaging it is to your credit.
We’ve laid off thousands of employees to save money so it’s going to take at least 6 months to get to your application, if you’re lucky – Evaluating a loan modification package only takes a few hours but getting to your application is going to take several months.  This is, of course, because the demand is outpacing the supply of bank employees to do the work.  Banks can’t hire people fast enough to bring the demand/supply model back in balance, and they likely don’t have any desire to do so.
You have no shot at getting approved – In order to qualify for a loan modification you have to have a hardship worthy enough to justify the lower rate.  The problem is one man’s hardship is another man’s inconvenience.  For example, you’d think that a severe loss of your home’s value is a hardship.  You’d be wrong.  You might also think that a reduction in pay or a child starting college is a hardship.  You’d be wrong again.  The point is the rules are not clear at all so homeowners waste time and money applying for a loan mod when they have absolutely no chance of it getting approved.
While we’re taking at least half a year to consider your loan modification we’re going to charge you late fees – Despite the fact that you CAN make your normal monthly payment you’re not doing so (during the trial period).  This means each month you’re technically paying late.  You’re not late as in you didn’t get your payment sent in by the due date but you’re late as in you didn’t make the full contractual payment.  This means you’ll be assessed a late fee each month your mortgage is past due. 

After we deny your loan modification application we’re going to begin foreclosure proceedings – In the ultimate slap in the face many consumers are getting notices of intent to foreclose soon after they’ve received their loan modification denial.  Of course you can stop the foreclosure proceedings at any time by making good on all of your past due balances, which will be made up of your monthly underage and accrued late fees.  If you’re able to do so it doesn’t save your credit because your credit reports will already have a record of the foreclosure proceedings starting, which won’t be removed just because you bring your mortgage current.  You get to enjoy that for seven years.
We’re not going to remove any of the late payments that WE caused – Every month you were short on your mortgage payment likely resulted in another late payment being added to your credit files.  And regardless of the outcome of the application the late payments are likely to persist for seven years.  The lender insisting on a lower monthly payment, of course, is what caused the late payments.
If it seems like the loan modification programs set the rules in opposition, you’re actually right on.  Pay on time, but don’t pay the full amount on time.  We’re ok with you paying late, but we’re still going to charge you a late fee.  Thanks for trying to do the right thing by saving your home, but now we’re going to foreclosure anyway.  Think long and hard about whether or not you really need or want a loan modification.  The damage of a failed attempt is almost no better than simply walking away from your home.


Taken From (http://www.smartcredit.com/blog/2011/02/08/loan-modifications-more-about-the-failed-program/)