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Why do a loan modification? Is it even financially wise?

Discussion in 'Loan Modification' started by fighton, Dec 15, 2010.

  1. fighton

    fighton LoanSafe Member

    Ok I'm up late and like past 7 months can't sleep worrying about my loan modification. It just dawn to me that a loan modification isn't even financial wise so why should I even keep at it? Other than allowing you to keep your home during a financial hardship because most of us love our home and want to keep the family stability. But if you think of it. Most of us applying for the loan mod are underwater that is why we can't just sell and move on. So from what I read of others getting their loan mod approved the terms seem to be at best 2% for first couple years then 3-5% for following years to extend it to total of 40 years. So now instead of a 30 year you have a 40 year mortgage commitment. Which means to me that the bank is making more money on this loan mod getting an extra 10 years from me. So let's say I already paid 5 years of a 30 years which leaves me 25yrs but if I accept the typical loan mod I would have to start all over again but at a longer term similar to rolling over payments when you buy a new car but you still upside on your old car. You end up eating it not the bank. So the last 5 years basically was free money for the bank. Unless there is a principle reduction this doesn't seem financially wise to accept a loan mod. Seems to me it would be better to save your money and let it forclose or better use the mortgage money you are not paying and buy a lower value house at lower payments if possible at 15 year term. So any feedback or anybody can convince me why getting a loan mod is financially sound? I guess one would be that it would not ruin my credit if I accept and continue to make payments. By the way credit was invented by the banks to screw with you so they have a reason to rape as much money from you.
  2. mrange25

    mrange25 LoanSafe Member

    You bring up some good points that I think a lot of people don't consider. A loan modification is definitely not a gift from the bank. It is a temporary bandaid until your finances improve. And yes, you are going to be paying extra in the process.

    Banks only care about one thing: Money
  3. Kimbah

    Kimbah Guest

    Sorry if I missed it but has your mod been approved or are you still working the process? I think you have to weigh all the variables as they apply to YOUR situation when you know what terms you'll be offered. Not all mods have the term extended to 40 years or have balloon payments at the end.

    For example, in my case, my terms weren't extended at all and I don't have a balloon payment. Additionally, I had my 2nd modded under 2MP. I'm also not that upside down all things considered. And we're in a position to be able to raise income/lower expenses if necessary (FINALLY, thanks in part to both mods!). Rent for comparables here are about $400 more per month. So in MY case, I feel I got an excellent mod that works both long and short term to help my family.

    On the flip side, if my house was significantly upside down, I had a balloon, extended terms to 40 years, limited income/employment opportunities, could rent for less then I would absolutely seriously consider walking away. It makes sense.

    If I were in your shoes, I'd wait to get hard numbers then apply them to your situation both short and long term. THEN make the best decision as it applies to you!

    All the best. Good luck!!
  4. fighton

    fighton LoanSafe Member

    I have not been approved or denied yet for a mod. It has been about 6 monthsvfrom when I stopped payment and I'm still waiting. I guess it is true that should wait for the numbers to see if it makes sense. But as days go by if just feel this loam mod is not all that it's cracknup to be. Thank you all. This site is the best!
  5. Mikey von

    Mikey von LoanSafe Member

    My mod dropped my interest from 7.125% to the standard 2% for 5 years, and then 1% up a year capping at 4.325%. It stretched my loan out an extra 2 years. This mod is saving me over $250,000 in interest over the life of the loan. I am saving $60,000 just in the first 5 years. I am very happy the lender gave me this opportunity. I signed the original loan docs promising to pay, the bank (OWB) did not have to do a mod, but they still did. It sure sounds like financial wisdom to me and I get to stay in my dream home.
  6. Serenity

    Serenity LoanSafe Member

    You bring up the exact points that led me to the decision to stop trying for a loan modification. In my case, unless the bank came through with a significant principal reduction, no modification would be worth it in the long run. With a modification I could handle the payments, but I'd be underwater forever. I'd never be able to sell.

    Once I did the math minus the emotions nothing else made sense but to walk away.
  7. mrange25

    mrange25 LoanSafe Member

    Load mod's will work for some people, others not. You have to look out for yourself and your family over the bank, though. There are some people that play the loan mod game only to have all of their financial resources sucked dry and then they are too broke to find a rental.

    I applied for a loan mod in february and I had about $5000 in my checking acct. I was denied for loan mod because they felt I "had too much money" even though I was losing $800/month. At that point I knew the bank didn't care if I was going to be homeless or not. I decided to file bk and walk away.
  8. freedomwon

    freedomwon LoanSafe Member

    Taking out the emotions is by far one of the most difficult parts of this whole process. I purposely chose not to have Christmas at my house this year since I need to work on emotionally detaching myself from my home. Haven't made a payment since Sept '09 & a NOD still has not been filed with the county recorders office. I specifically told BofA, "I will not be making any payments until we can reach a long term permanent solution that works for all of us; me, BofA (the servicer) & BONY (the note holder).
  9. fighton

    fighton LoanSafe Member

    Here is an update: Was able to get Chase to postpone the Trustee Sales Date approximate 30 days 1/27/11. Just went to a free Consultation bankruptcy lawyer.. Price Law Group in CA. Spoke via video cam to Justin Harelik (if anybody has experience with this law group let me have some feedback) Was told if you have no assets to file Chapter 7 and get rid of all mortgage (obviously lose the house), Heloc, Credit Cards and medical bills. Chapter 7 still can keep the home (mortgage) but if you do you also keep the Heloc loan (I need to confirm again whether or not Heloc can be elimated?). Estimated $1700 for fee (probably more by the end)

    If you want to keep the home then file Chapter 13, keep the mortgage but can eliminate the Heloc, but 3-5 years make monthly payments to your (creditors) through the court. Both bankruptcy can postpone foreclosure (Trustee Sale) a few months. Keep in mind things can change in 5 years (lost of job) that can make you refile for Chapter 7 and lose the home anyways.

    So basically I think we are going to wait for the Chase Home loan modification approval (number of the offer) or denial. If it is not financial worth it, I think it may best to just file Bankruptcy Chapter 7 to be free and clear of all these debts, and start fresh and save some money up the next 10 years. After all in a 30 year the first 15 years is to interest anyways. I will never go 30 years again.. either 15 years or less.. Save your cash until you can afford 15 years or less mortgage. Its highway robbery to know how much interest you pay to the banks the first years with no principal reduction. Goodluck to you all<!-- google_ad_section_end -->
  10. Martinez02

    Martinez02 LoanSafe Member

    A loan mod works if (a) you can afford the payment and (b) it gets you within 120% of market rent for equivalent product.

    Otherwise, it doesn't help you.
  11. DaveFred

    DaveFred LoanSafe Member

    Sadly for many a loan mod is like fools gold. It looks good at first but a closer look reveals its mostly fairy dust.
  12. kimmyg

    kimmyg LoanSafe Member

    my thoughts too

    And beyond what has already been discussed, I have also considered the chance of having to sell my modified house in maybe 5, 10 years down the road. What if I can't sell because I'm still so underwater? Would I then have to consider letting the house go back to the bank if moving wasn't avoidable at that time? So then getting my credit and life back on track to not really have solved my situation but instead I have only just postponed the inevitable of forclosure? Modification might not be rational because how many of us stay in a house forever? I know some plan to, but what if we don't?. Maybe despite my longing to stay in this house....it might make little sense in the big picture. Modification might just serve some of us as a postponement not a good long term solution. I really want to get this all behind me the best way I can and I'm not sure I will be up for going through anything like this again! It's difficult to be losing your home. I hope I was able to explain this clearly. If not...jump in and help me out. : )
    Thanks!
  13. Serenity

    Serenity LoanSafe Member

    I'm so >there< with everything you've said! I looked at my neighborhood compared to others in my area. And I put myself in the shoes of a buyer looking in the market right now. Anyone house shopping in the range of $150k locally can easily get into a 4 or 5 bedroom, 3 bath, 2000 sq ft house. Possibly with a pool. In very nice, family friendly neighborhoods. Those houses stand a much better chance of climbing in value over the next 5 to 10 years.

    On the other hand, I'm in a small townhouse that paid $250k for, and are currently listed - but not really selling - for $77k to $79k. The ones that are being sold are being bought by investors who're turning them into rental units. So its highly unlikely that these places will be creeping back up near what I owe one it within the next 10yrs or so.

    So unless the bank was willing to do a SIGNIFICANT principal forgiveness, a mod on the full amount I owe wouldn't do me any good in the long run. If I needed or wanted to move over the next few years, I'd still be stuck because the place still wouldn't be worth enough to cover the note. So my options are to let it go now, or continue to throw good money after bad and then let it go later...when I'm older and have even less time to recover financially and credit wise.
  14. cmass122

    cmass122 LoanSafe Member

    I assume if you do a loan mod ..like refinan. in a non recourse state CA example, it will turn it recourse and then the bank can sue when the home doesnt come back to value for 10-15 years? trick? anyone?
  15. RyanJP

    RyanJP LoanSafe Member

    Exactly. My loan mod puts me at LESS than market rent for anything even approaching the living space I have. And that includes the property taxes.

    I'm waiting another month to file BK7 (took out a 401(k) loan 5 months ago to keep myself afloat while working on the loan mod, which killed me for the means test). IF I don't reaffirm the mortgage, then I am free and clear of my house if I'm unable to sell it and cover the mortgage some time in the future.

    Its a win-win in MY particular scenario.
  16. 1down1togo

    1down1togo LoanSafe Member

    No, a mod isn't a refinance, so it shouldn't make a non-recourse loan into a recourse loan.

    One thing to keep in mind (although it won't be enough for someone in a situation like Serenity) is that the 5 years of 2% interest pays down the loan in a hurry. So at the end of 5 years, you might be able to sell if you are not way underwater right now. For example, my loan now is $325K, but after 5 years at 2%, it will be about $260K or something like that. I'm underwater now, but may not be in 5 years.
  17. cmass122

    cmass122 LoanSafe Member

    yes as long as you are in a good housing area and like your home enough to possibly stay for 10+ years if market doesnt recover which is the thinking process
  18. MyHAMP

    MyHAMP LoanSafe Member

    That's pretty much sums it up!
  19. freedomwon

    freedomwon LoanSafe Member

    Thank you for that Martinez02. I'm certain many people appreciate the condensed answer.
  20. espo1357

    espo1357 LoanSafe Member

    Nobody gets away from not having to pay for shelter. We all must pay.

    If you get a modification that is similiar to renting, and you love the area you live in and the home, then it makes more sense to stay.

    I go back and forth with whether or not to stay in my home, and it comes down to the quality of life in my home being too great and renting is actaully going to cost more for a similiar home.

    Now, I don't trust the banks at all. But, the deal I have now makes sense, and I am going to roll with it.

    If I had to do it all over again, I would have just rented a cheap place, and then paid cash for a place when the timing was right.

    Real estate is going to be down for at least five more years, and probably closer to ten more years, before it gets going again, it could take 20 years, who the hell really knows?

    In the meantime, I use my home to have a good lifestyle, and my taxes on the home are the lowest in the country, and the upkeep is minimal, so I will stay.

    I would say that those that are under, and have high taxes, and have lots of upkeep, that renting is smarter in that situation.

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