The Problem with Loan Modifications and Lenders Addressed.
March 4th, 2013
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People often complain about the difficulty in obtaining a modification of their loan to achieve a more affordable payment. The fundamental problem that exists is that your mortgage lender that you make monthly mortgage payments to is often not the investor behind your mortgage. The investor or otherwise real owner of your mortgage is another entity or consortium altogether. I would like to describe the conflict that often interferes.
The lender or servicer that receives your monthly mortgage payments can be characterized as the toll booth. They handle the monthly account maintenance and follow your investor’s instructions but I would not assume that they have incentive to satisfy your wishes for a more affordable mortgage payment. The Servicer gets paid every month whether you succeed with a loan modification or not, just like car passing through a toll booth.
The actual investor on your loan must agree to a reduction in terms and a path to a suitable work out in order for the servicer to issue you a revised set of mortgage terms. This requires a lot of nonsensical inefficient back and forth committee work between the Servicer and the Investor. The Investor has thousands of loans and they often have the attitude that you signed the mortgage note and, therefore, you should find a way to pay the money. Unless they can really see hardship that would adversely affect them as the Investor based on their cost basis in your mortgage, you will often fail with your loan modification efforts. More often than not, you will be approved for a Loan Modification only to end up with modified payment terms that exceed your original terms. You may also find that your loan balance is much higher than previously.
Loan Modifications are traditionally not fair nor do they offer more than a short to intermediate term benefit if you are fortunate enough to secure one that makes sense. Know this, and also be aware that Loan Modifications and associated disclosure to your Servicer can pose risk. Your lender is under no obligation to satisfy your demands and they can and often do use information from the modification process against you. I have never been an advocate of Loan Modifications as being a fair and equitable solution.
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