Mortgage Modifications in the Real World

05 Feb Mortgage Modifications in the Real World

Mortgage modification agreements are being offered by some lenders. But all mortgage modification agreements are not equal. Here’s what’s happening in the real world, today.

Some lenders will modify and some won’t

In Illinois and Wisconsin, we see certain lenders and servicers becoming much more reasonable about engaging in loan modification agreements. For example, Ocwen, Citibank and Chase are much more likely to come to the table with a loan modification today than in the past. This is especially so if you can grind their foreclosure case to a halt. Other lenders and servicers are just as interested in pursuing foreclosure and sale as they ever have. For these, we need mortgage modification legislation from Congress.

Not all modification agreements are the same.

Some lenders will only modify a loan to the extent that they will add the balance to the end of the loan. This may help the borrower keep his home. But it doesn’t build equity nor does it give much incentive.

Some lenders will modify the loan by adding the balance to the end of the loan while reducing the interest rate. This is better but still does not necessarily address the problem of erosion of equity. Again, the borrower may be able to keep her house longer, but the future is still uncertain.

Some lenders may actually write down the principal balance of the loan and reduce the interest rate. These modification agreements come closest to recognizing the reality of the situation and ought to be encouraged.

How do you get a good modification agreement?

It’s not easy. If you don’t stop the foreclosure, you can’t count on any meaningful negotiation. So you need competent defense. You need to know who to talk to and who has authority to deal. If a mortgage foreclosure is going on and you can stop the foreclosure process by defending, you have a decent chance of modifying your mortgage. It is important to have realistic expectations. Not every loan was a “predatory loan.” Even the best litigator can’t “win” every defense. And litigation is expensive. So you have to consider the costs and the benefits. Think about what you want to accomplish. You may then have a chance of success.

How to not get a good modification agreement?

  • Don’t fall for “mortgage modification experts” who used to be mortgage brokers.
  • Don’t pay big “up-front” fees for people who can’t prove that they have a track record.
  • Don’t ignore foreclosure litigation which is proceeding while you think you are negotiating a mortgage modification agreement. What happens in court could leave you in the street with no modification agreement.
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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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