It's been a year and half since I've written about Loan Modifications, and/or the latest Hope for Homeowners that the White House is spinning, and guess what? Yep, you got it not much has changed except the frustration. We are frustrated with the "banks" for having us send in mounds of paperwork, giving us hope, and then denying us because we don't qualify.
Let's talk about qualifying. When we obtained the loan we fit the guidelines. We had minimum credit scores, we either had a down payment or not, we had the required FICO score and debt to income ratio (50-55%). So, what's the problem? Some smart people at the bank (those who gave us those crazy loan programs in the first place) or perhaps politicians decided that they'd try a 6 month forbearance agreement first (don't worry I'll get to why a forbearance agreement is crazier than crazy) and, to set the qualifying debt to income ratios at 31-38%. Now doesn't that make sense! When is the last time wage earners have been given a 20% raise? How about modifying our loan at a lower rate hence a lower payment for 3 -5 years until we can get back on our feet monetarily and mentally? It seems to me that Investors would rather have some money coming in rather than take it in the shorts. Unfortunately, my thoughts are probably too simple. I am not taking into account all the special incentives banks get, the write-offs, the responsibility they have to their Investors to show profitable balance sheets.
So, what are our options? Work two jobs? Put the kids to work? Borrow money from friends and family? Dip into our retirement accounts? Walk away from our homes because they are probably upside down? Many people have been harassed beyond belief as they honestly try to pay their mortgage. One "financial planner" in the loan modification department told a borrower that "they need to budget better, why do you spend so much on groceries." Another was told "we can't offer you a modification at this time, but we can offer you a forbearance agreement." Cool, they are finally going to help us. They are going to forbear all the late payments and we can start fresh. Not so fast! The typical forbearance agreement looks like this:
1) Pay your regular monthly payment
2) Plus pay a portion of the amount past due
3) If all payments are on time for 6 months then we can revisit a loan modification
Sounds great, except if your mortgage payment is $3,000 per month and you are behind 3 months. Yes, it means you would be paying $500 dollars more per month. Really?
Why no compassion from the banks? Sadly, we talk about banks as an entity, but they are run by living breathing human beings aka CEO's that are more concerned about their reputation, their big salaries, making the social papers, and not taking responsibility for what they created, and, and, and Whew! I feel better.
Now I suppose I should be fair. Many people bought homes that they couldn't afford in the first place. They were kinda enabled. Many people have lost their job, and a loan modification would not make sense.
So, what to do and what not to do? Do not do nothing!
If you are upside down then a short sale will stop the collection calls, your credit will not be hit as drastically (you can buy again in 2-3 years), employers doing back-ground checks will look more favorably, and more importantly while your home is in the short sale process you can save money to move and catch your breath.
If you have equity in your home, and let it go to foreclosure you stand the chance of losing any equity you may have if the home goes to auction and the bid is low...then you get nothing. If you choose to list you will retain some of your equity and avoid the blemish to your credit.
If the banks will not help you then you must help yourself. Foreclosure is debilitating both financially (future) and mentally.
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