Mortgage modification companies are sweeping the country with a very simple promise: pay us a fee and we’ll help you negotiate your late mortgage out of arrears. Many mortgage modification companies advertise that with a small investment, homeowners have reduced their principal, interest rates, monthly payments, and even saved as much as $100,000 over the life of a loan.
But does that mean a mortgage modification company is a good company to hire to make sense of a late mortgage? Sometimes.
Let’s explain first what mortgage modification actually is. Mortgage modification is a process by which a borrower and lender work to modify an existing mortgage to make it work better for a borrower’s needs. In general, borrowers who seek out a mortgage modification have lost a job, took a significant reduction in pay, or live in a home which is worth significantly less than the value at the time it was purchased.
Borrowers and lenders both have an incentive to seek a mortgage modification. For one, mortgages are typically not modified, and an unmodified mortgage usually ends in foreclosure and repossession of a home. However, banks aren’t all that interested in owning more property, and homeowners would like to keep their homes if possible. Therefore, banks and borrowers routinely meet in the middle, so to speak, to modify a mortgage in a way that will make the mortgage more affordable for the borrower and more profitable for the lender. Remember, in many states you can simply walk away from home loan debt, enabling some borrowers the opportunity to play tough in negotiations with banks.
Mortgage Modification Companies
The number one reason to hire a mortgage modification company is to use their experience to find the best possible modification for your needs. A good mortgage modification company will be able to sculpt a modification program around your needs, but also around successful strategies that have worked for their clients.
Banks typically have a very basic process for mortgage modification. Algorithmically designed, a typical mortgage modification request is dealt with by using numbers. Incomes to debt ratios, the bank’s possible losses, etc. all come into play. If the numbers line up then the bank will work with the borrower. It’s the mortgage modification company’s job to make sure the numbers are attractive to the lender and borrower, but best for the borrower, as that is who they work for.
The majority of mortgage modification requests are for forbearance or deferral, two options which will allow you to delay your monthly payments for a predetermined amount of time. When your loans are deferred, the payments are simply skipped over and added to the balance, gaining interest all the while. Forbearance often enables a borrower to slow the growth with compounding interest while putting off monthly mortgage payments for as much as two years.
In states where the borrower has a leg up in walking away from a home, a borrower might negotiate for an off the top reduction in principal owed. In some cases, banks are extending new cuts to mortgage debt by $50,000 to $100,000 in order to encourage homeowners to continue paying. As far as the bank sees it, a $100,000 loss on a $400,000 mortgage isn’t nearly as bad as a total loss on a $400,000 mortgage.
You’ll need to evaluate your state laws before proceeding with a mortgage modification request. In many cases, mortgage modification companies will provide you with a free consultation to discuss possibilities for mortgage modification, the costs of negotiation, and the methods for getting out of your financial crunch. Consultations are generally free, and an excellent way to see if you can get your mortgage modified—either by the company, or by yourself.