Mortgage Re-Defaults: Are Modifications Enough?

24 Dec Mortgage Re-Defaults: Are Modifications Enough?

I have written elsewhere about the joint report of the Comptroller of the Currency and Office of Thrift Supervision showing that a rising number of borrowers who had worked out payment plans or mortgage modifications with their lenders were in default again. The reason for those re-defaults? The mortgage modifications often don’t lower payments. In fact, sometimes the payments increase.

Chris and Cherita Barnes got a mortgage modification from their servicer, Ocwen Financial Corp., in March 2008.

But they’re already behind again. The loan workout froze the 8.75% interest rate on their adjustable rate loan, but added their missed payments, interest and late fees back into the mortgage balance, raising it to $354,000 from $329,000.

The Barnes’ new monthly bill came to $3,167, up from $2,890. That was better than it would have been had their interest rate continued to reset higher but it still pushed their mortgage payments, including taxes and insurance, to about 53% of their income.

The couple, who both work and have three kids, are now trying to figure out what to do next.

The Barnes’ predicament is not unusual, according to James Jones, a foreclosure-prevention counselor with the East Side Organizing Project in Cleveland.

“I see quite a few of these [unmanageable modifications],” said Jones. “When we get offered them by lenders, we challenge them.”

But many borrowers are terrified of losing their homes and, in that vulnerable state, will accept whatever lenders offer them — especially if they don’t have an experienced advocate helping them.

If your payments are behind, consult a reputable housing counselor, or, even better, consult a lawyer experienced in foreclosure issues or Chapter 13 bankruptcy. There may be better options than those your lender are offering you.

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