Mortgage Loan Modification Basics

October 31, 2009

Loans & Mortgages

Mortgage loan modification process is not as simple as many assume.  Here’s a link to a good LA Times article explaining mortgage loan modification programs, and what it takes to qualify for them – http://articles.latimes.com/2009/mar/22/business/fi-cover22

Some of the main points covered are:

  1. Most people will not qualify for a mortgage loan modification under any program, because they just don’t have the income to do so
  2. Even if the loan is modified, it is usually a temporary situation and the missed payments will be added to the back-end of the loan.   Borrowers will still have to pay off an entire loan amount when they sell or refinance
  3. Banks/Investors will not reduce loan principal

Personally, I totally understand why most people are disqualified when they apply for mortgage loan modifications.  The loan amounts on the properties are so outrageous, that even at 0% interest it is still hard to bring the payment down to where it should be realistically, or where someone can qualify for it.

mortgage loan modificationAnd why would anyone want to keep a home whose loan amount is three times the home’s value?  It will take another 15 years (next RE peak) for property values to go up to where they were at the peak.  Basically, that means these homeowners will be stuck in their homes for  another 15-20 years, unable to sell them, until the value of the home exceeds the loan amount.   Or, it will take them another 40 years to pay the loans off, because most loans are extended to 40  years just to make the payments more affordable.

I do understand how hard it is to lose one’s home and uproot the entire family.  But if I were in the same situation, I would probably Short Sale the house, rent for two years (if I can find rent for less than the old mortgage payment), and  then go back and buy a new house 2 years later, which the shortened Fannie Mae guidelines allow (there’s a 4-year waiting period after a foreclosure).

Fannie Mae waiting period guidelines: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf

For No Up Front Fee Loan Modification information, go to: http://www.loanmods2009.com/

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One Response to “Mortgage Loan Modification Basics”

  1. Gary Aminoff Says:

    Angella, we have investors who will buy homes on short sales. If the owner has income and can afford to rent the house back, he will not have to move. We will rent the house back to the previous owner for three years and give him an option to buy back the house in the third year. None of the owners friends or families will even know he had to sell the house.

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