When mortgage is in default, it’s either homeowners received a loan modification proposal from its mortgage lender or the reverse. Although the first situation doesn’t happen often, the point is being prepared to propose for a loan adjustment. If homeowners want to keep their home, a proposal should come from them first.
When the proposal comes from the homeowner, it is wise to examine carefully the mortgage lenders’ response. Some part of the counter proposal content might be traps for homeowners. These traps might only be noticed after homeowners have already agreed with the loan modification. Although it is apparent that they need their help, but it doesn’t mean they’ll be submissive throughout.
For instance, in a loan modification, late payment charges should be waived off. Otherwise this program will still not help homeowners with their mortgage woes. If charges are still added, as stipulated in the counter proposal, it’s the same as there isn’t a loan adjustment at all. Late charges plus principal, plus interest is already too much for distressed homeowners.
Furthermore, in a loan modification proposal, the right spacing of a period when interests are increased should be clear and favorable to the borrower. There should be considerable time for them to pay the mortgage within their realistic income capacity. For example, in the first two years of the new mortgage period, the interest rate is lower. This scheme should provide enough room for homeowners to be financially stable and pay mortgage regularly.
Remember that from the point of the lender, its profit first for them. However, the point of loan adjustment is defeated when homeowners are not given leeway with due amount and interest rates. With the present housing problems, foreclosures will not help lenders since the buying of homes is also dim. Besides this property devalues fast when it’s not maintained periodically, there’s no point of keeping them.
The intent of loan modification by philosophy is to allow mortgage lenders to get what is due to them. While, in effect, homeowners are given the chance to keep their home. This is obviously a win-win solution for both lenders and homeowners.
However, lenders may also take advantage with the foreclosure and application of loan adjustment by homeowners. So, homeowners should protect themselves from possible traps that lenders may cleverly include in the modification contract. They shouldn’t get lured with the term loan modification at all.