Why Loan Modifications Don’t (Usually) Work

By Andrew J Thompson

The only thing that can help most homeowners who are behind on mortgage payments, is a reduction in their monthly payment.   Loan modifications don’t often work out because the programs created by banks and HAMP – the federal government’s “Home Affordable Mortgage Program” –  do not allow enough flexibility for homeowners to actually reduce their loan payments.  

This is true because the real purpose behind most of what is in the modification programs is to try to enable the banks to collect the full amount due on the loan as quickly as they can.   The banks want to do this, of course, but they want it in spite of the reality that the homeowner is only behind because he or she (or they) can’t make their current payment.  What ends up happening is that a sort of, modification “shell game” is created that the homeowner can’t win.

The lenders put the homeowner though a long process of essentially re-qualifying for a loan, at the end of which, the homeowner typically qualifies for a reduced payment of principal and interest – only to learn when the full terms are disclosed – that there is a kicker: the arrearage alleged by the lender must be repaid on a schedule that actually increases the total payment the homeowner must make.  Of course, the borrower only learns of these terms after a long, drawn out process, which has lead them to go further into default on the loan (on the expectation that they will qualify for more favorable payment terms), and leaves them in a worse position than they were before the process started.

So what is a homeowner to do?  For the most part, I believe the defaulted homeowner is better off to skip the whole loan modification process.  First of all, there may be very serious problems with the mortgage and promissory note, and it may not be necessary.  You may have more rights than you know.  In a few instances, a loan modification may work, but only when there a a few pre-conditions: 1) the creditor agrees to an arrangement during the approval process that allows you temporarily to reduce your payment, without going further into default.  Most lenders won’t do this, but if they won’t, you are not going to come out ahead in the end, and it is not a worthwhile process; 2)  any catch up arrangement for an arrearage will necessarily be structured so that the overall payment – principal , interest and the catch up – will be less than the original payment.  Otherwise, the loan modification CANNOT work.

But it is very rare to find a lender who will agree to such provisions.   yet if they don’t, the whole process is a sham – designed for failure from the outset.  If that turns out to be the case, it’s probably time to seek counsel to assist you in deciding how best to proceed.  Your rights need to be protected.  Protect them in the best way you can.

If you’d like to discuss your options with our staff, please contact our office at (877) 365-1776 toll free or (317) 564-4976, or contact the author vial email: ajt@thompsonlaw-in.com.

 

About Drew Thompson
Andrew Thompson is an attorney with 27 years of experience, now with Landmark Legal Services located in Indianapolis, Indiana. Andrew also founded Tinker Street Funding (Equity Crowdfunding platform) in 2015 and FLA-21 (Funding, Legal counsel and Advocacy) in 2016. Mr. Thompson ran for Congress in 2016 on a platform of fighting for the restoration of individual liberty and limited government. Mr. Thompson's practice involves helping entrepreneurs and small businesses acquire, sell, finance and establish the business platforms to succeed, and protecting those businesses, homeowners, parents and families in business, the courtroom, and their lives.

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