Pros and cons of a loan modification

We are just keeping our head above water with our mortgage/taxes we can't refinance because our home value is below what we owe on the house. We are looking into doing a modification through our bank but I'm not sure if this is a good move has anybody been successful with this? I want to hear it all the good bad and ugly TIA

Re: Pros and cons of a loan modification

I haven't done it, but as a realtor, I do know a bit about it.

I know that the majority of applications for loan modifications are being denied. They just aren't that easy to obtain. But you really have nothing to lose (but some time and effort) for trying. And, if you do not succeed with a loan modification, and decide you need to sell, most banks like to see that you've attempted to modify first.

In fact, as far as the process, you basically need to gather and prepare the same information that you would need to submit if you were trying to do a short sale: Bank statements, tax returns, preparation of a hardship letter (describing a change in circumstances -- such as illness or loss of job -- that has led to an inability to pay the current mortgage), an accounting of household expenses, etc.

Keep in mind that loan modifications often just provide temporary relief... most often, the interest rate is the term of the loan that is modified. You may get something like 2 percent for a short period of time (a year or two), and then the rate will increase again.

Of course, like short sales, a lot of this depends on the bank.

Let me know if you have specific questions!

Re: Pros and cons of a loan modification

We too are upside down in our mortgage but we were able to refi our first mortgage through the Making Homes Affordable Program. We got a HARP loan. We dropped our interest rate a point and we were able to save ourselves $370/month. The closing costs weren't too bad, they rolled about $4K into our principal and then we owed a little more out of pocket just because we closed the loan within a few weeks of our taxes and homeowners coming due. Anyway, it was worth it. The extra $370 month has been a big help!!

It was SO easy to get the HARP loan, it was literally a phone call to Chase, some minor paperwork, and then a bunch of signing at the bank once we closed. VERY easy.

Message edited 9/7/2011 7:06:19 PM.

Re: Pros and cons of a loan modification

We're also "underwater" and couldn't refi. I'm surprised to learn that loan mods aren't supposed to be easy to obtain; we had NO problems with our bank.

It was cheaper than a refi (2k flat fee vs having to close again with a refi) and dropped our monthly payment by about .5 points in interest.

Re: Pros and cons of a loan modification

We did a loan mod last year and had no problems at all - so easy! It is a fixed rate so no increases in rate. We were able to lower our monthly rate, monthly payment and term. We did not have to provide as much documentation as when we did a refi and it was a lot cheaper. We did the mod thru the bank we already had the loan with (don't think you can switch banks with a mod) and we can do a mod once per year if we like (paying for it each time, of course).

Re: Pros and cons of a loan modification

Yes, you are correct that you need to do a loan modification through the bank you have the original loan with, because you are keeping the same loan (same loan # and everything). You just modifiy the terms -- reduction in principal is rare, but often there's a reduction in interest rate, or the loan is "recast" in terms of the length of the loan (15 year becomes 30, 30 becomes 37, etc.).

Re: Pros and cons of a loan modification

I lost count of how many loans I have successfully modified

it depends on the bank and the situation

feel free to FM me any questions

I ran my own loan modification company prior to becoming a full time realtor

it's all in the way you fill out the application- that's were 99% of the people go wrong

Re: Pros and cons of a loan modification

Loan mods are a joke. If you don't fit into the tiny criteria the bank sets you don't get one. Ridiculous program that helps a tiny slice of the people who need it.

I tried to do a loan mod and was denied several times. The hoop jumping was ridiculous only to have been put into forbearance for no reason. I was current and never missed a payment. My credit was trashed.

I got it fixed but I think it's a racket. Several folks I know tried to do a loan mod and were denied as well.

Because I wasn't broke I couldn't get it. I was paying on two properties, one a rental I couldn't rent in a depressed market and my home I live in. My DH was out of work and we blew through our small savings.

We have not fully recovered financially yet.

eta: and this is one of the many reasons our economy hasn't recovered. We had to leverage ourselves even further to keep paying the mortgage.

Message edited 9/10/2011 10:14:39 PM.

Re: Pros and cons of a loan modification

i successfully did my own load mod. I got denied the first time but found a video on the internet about how to qualify, and got approved the second time. My interest got lowered to 2% for a couple of years and then eventually goes up and the term went up to 40 years. i am saving about $1000 a month, it would be less if my taxes weren't so high either. I just called recently because my financials changed and she said it can be done again after a year. It is such a pain with all the paperwork though, and some banks can be harder to deal with then others. I also helped my mother in law with hers and she was current on it. FM me for any questions.