Consumer Law

The Mortgage Modification Catch-22

By Sam Glover

If you want a mortgage modification, most lenders will tell you to stop making mortgage payments before they will consider you for modification. Of course, if you stop making payments and you don’t get a mortgage modification, you will end up in foreclosure. Letting your loan go into default is a risky proposition because the downside is losing your home.

Once you stop making payments—even if you make reduced payments—you are in default on your loan, which means you will go through months of submitting paperwork, navigating phone trees and bank representatives, and re-submitting paperwork the bank lost. Then, one of two things will happen:

1. You get a mortgage modification!
2. Your mortgage modification request is denied. Which means you have two choices: (1) you can pay the difference between the reduced payments you were making and the full payments you should have been making; or (2) the bank will foreclose.

There is no easy way out of this catch-22, and because most mortgage modifications are not easy to come by, many of the homeowners who try to get one will end up facing it. If you are considering seeking a mortgage modification, you should do so with the help of a lawyer or free HUD-approved housing counselor. You should also plan ahead.

An attorney or counselor can help you assess your chances of getting a mortgage modification. If the chances are low, it probably does not make sense to throw good money—those reduced payments—after bad.

On the other hand, if you do have a good chance of getting a mortgage modification, it probably makes sense to save as much money as possible while making those reduced payments. That way, the “balloon payment” if you are denied will be more bearable.

You may have other options, depending on your situation. Call a free HUD-approved housing counselor or consumer rights attorney to find out.

Related posts:

• Mortgage modification: what you can and cannot get
  The government and the banks say consumers are getting mortgage...


• Where to get help when you can’t pay your mortgage
  If you are having trouble paying your mortgage, you need...


• Could Banks’ HAMP Shenanigans Put a Kink in Their Foreclosures?
  The Indiana Court of Appeals have suggested that banks that...

Full post as published by Caveat Emptor on January 19, 2011 (boomark / email).