Loan Modification: Am I Getting A Good Deal On My Loan Modification?

Date:February 3, 2009 | Author:Justin McHood | Category:Loan Modification

I took call today from someone who asked me a question I have never been asked before.

“Hello, I am calling you to get your opinion. My lender just offered me a loan modification where they are going to do a principal reduction of $60,000, write down my interest rate to 3% for 5 years and then have it go up to a maximum of 5% for the next 25 years. My question to you is… Do you think I am getting a good deal?”

I immediately sat down.

And impulsively scratched my head.

And thought.

Maybe? Yes? Heck-if-I-know?

Those were the first three things that came to mind.

I proceeded to speak with the gentleman about his situation and had a great conversation with him about his situation and gave him some ideas on how to tell whether or not he “got a good deal” on his loan modification.

Three simple things that you can do to help answer the question of “whether or not you are getting a good deal on your loan modification”.

Ask around. See what other terms that people are getting on their loan modification.
Begin with the end in mind. If you know what your goal is before you start the loan modification process, you have a much better chance of feeling like you are getting a good deal once you achieve your initial goal.
Do your research on loan modification. Many people have success with the loan modification process and are sharing their experience online because they want to share their successes with others.

So if your lender came to you and offered to knock $60,000 off of your loan, write your interest rate down to 3% for 5 years and have it cap at 5% for 25 years, would you think you are getting a “good deal” on your loan modification?

Maybe? Yes? Heck-if-you-know…

Pick one.

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Responses (16)

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Bill Bost 1:15 PM - Feb 5,2009

It is an interesting dilemma. The federal modification programs generally require a borrower to be two or three months behind before being considered for a loan modification. What do you tell a client who asks whether he should skip a few payments in order to get to a loan mod like the one discussed.

I wrote a post about the nuttiness of this position at http://www.ncmortgagelaw.com.

Strange times indeed!

Bill
Justin McHood 1:23 PM - Feb 5,2009

@Bill,

Thanks for stopping by and commenting!

In an answer to your question – “What do you tell a client who asks whether he should skip a few payments in order to get to a loan mod like the one discussed?”

I don’t.

BUT

What I do tell them is to “get ready” if they think that they are going to opt to go down the loan modification path…

http://www.arizonamortgageteam.com/loan-modification-before-you-do-anything-you-must-do-this-first/

Justin
P Brown 10:53 AM - Feb 9,2009

Hi, I had a question my husband and I have been seperated for a year and he stop making payments, because he couldn’t afford them anymore the lenders said they were going to auction serveral times and have not. I have told him I didn’t want anything and walked away. He would like to stay with the house, but has not kept up with the payments is there any help for someone like him. We bought when the market peaked i was trying to see what the value was now.
Justin McHood 10:58 AM - Feb 9,2009

@P Brown,

Thanks for stopping by and commenting.

My best advice is to start by getting on the phone with your lender and tell them your situation. After you speak with them, you should have a decent idea of what is possible.

After speaking with them, you may want to speak with a loan modification company as well – and do the same thing – tell them your situation and see what they say is possible.

After gathering that information, then it is time to make decisions as to what the best thing for you to do is.

Good luck!
Justin
Joe 5:58 PM - Feb 20,2009

Justin,

I have an FHA loan – is it still possible to get a modification loan under the Obama plan ? We owe more than our house is worth.

Thanks Joe
Callie 9:10 PM - Mar 24,2009

Justin,

I read your comment about trying to see what your lender is willing to offer you. Most of my clients have tried working with their lender and have found themselves put on the back burner, turned down for crazy reasons, presented a repayment plan that did not suit their budget, or was told to skip a few payments to get on their priority list ( which is not recommended or suggested by our company to ensure results). This is usually a “put off” tactic.

I do agree to contact your lender first, but don’t expect spectacular results. Most lenders do not have the manpower or capability to assist homeowners in distress, due to the mass of foreclosures and pre-foreclosures. Therefore, they are famous for making excuses as to why a loan modification can not be achieved at that point in time.

To avoid headaches and stress, it is best to hire a reputable attorney based loan modification company to negotiate on your behalf.
If you had a bad tooth would you pull it out yourself or consult with a dentist? Same theory when it comes to loan modifications.

When choosing a loan mod company, be sure to research them thoroughly. There are more scam artists then legit companies.

I am proud to say that I am a case manager with Save My Home USA who is a leader in the loan modification industry, attorney based, affordable, and in good standing with the BBB.

My email is keepyourproperty911@gmail.com. Contact me anytime for advice or assistance.
Loan Modification 1:06 PM - Jul 14,2009

very useful information, thank you
Pat McGavisk 6:39 PM - Aug 20,2009

Is there any such thing as a loan modification or is it like the unicorn a mythical creature. I spent a year trying to get one with nationstar constantly asking for my paperwork and me supplying it. I kept telling them I couldnot keep up the payments. They would not modify my loan they said because I was making the payments. I fell behind and they don’t take partial payments. I went through several more months supplying the paper work again, Well now I am 8 mos behind going into /.and they sill won’t modify/ they kept yanking my chain saying it was being reviewed and now the investors have said no they will not modify. Well i don’t have enough to pay them they don;t accept partial payments i DON’T KNOW A SINGLE PERSON THAT HAS GOTTEN A MODIFICATION. ANY ADVICE I AM AT MY WITS END AND ABOUT TO LOSE MY HOME
Mark Kramme 5:29 PM - Sep 1,2009

The article above that ask the question is this a good Loan Modification, (60K principal reduction, 3.5% 5 years and 5.25 25 years) If your comparison is to current market refinance rates… this is a great deal. There is a huge problem comparing one loan modification to another persons loan modification result. Everyone’s hardship is unique and creates a unique financial hardship that causes a homeowner not to pay their mortgage. When I evaluate one of my customers monthly spending plan I’m looking for positive monthly cash flow. If they’re negative were going to modify/negotiate every monthly expenditure we can until they have a POSITIVE MONTHLY CASH flow. If 3.5% allows the customer to have a positive monthly cash flow then this deal is GREAT. If however, 3.5% leaves them cash flow negative then this deal is bad. Modifying the mortgage only addresses part of the problem. There has to be a Plan that modifies a consumer’s total monthly expenditures.
Free Loan Modification Kit 12:26 PM - Sep 12,2009

Many people do not believe they are getting a good deal on their loan mod becuase of all the crazy advertisements floating around claiming you can cut your payments down by 50-75%, in most cases this will never happen, so homeowenrs are reluctant to accept an otherwise fair deal
Joe 12:55 PM - Oct 12,2009

Hello, I am a disabled single man who lost my job 3 months ago. I did a regular mortgage modification through my bank for my 1/1 condo. They have reduced my interest from 5.6% to 2.87% for the next 5 years. I owe the bank more than what the apartment is worth, just like the rest of the country.

My question is the following: As a disabled person, do I qualify for an “EXTREME Hardship Loan Modification” meaning an reduction of my principal. My bank has only reduced my mortgage interest, but not the principal. I did failed to tell them I am a “disabled” person.

Thank YOU for your assistance with this matter. God bless you !!! joeclement03@hotmail.com
Natalie Goodwin 9:00 AM - Feb 5,2010

After 12 months of no payments to the mortgage company (they told me not to make any payments…odd I know)the mortgage company approved us for a loan modification and we just finished our trial period. They now offered us the deal…or is it? Our original loan amount was for $560,000. The deal that they are offering us is this:
$503,000 w/2% for the first 5 years and then it will go up 1% annually with a cap of 5% for the life of the loan. They have extended the amoritaztion to 40 years and the kicker: They are deferring $123,000 to the end of the loan!
Our home is worth $410,000 with a recent appraisal. If I take this deal then I will owe $ 626,000.00.
This looks like a scam to me. However, our teaser payment for the first 5 years looks good.
I have been negotiating with the bank myself. Should I try to find help negotiating or what would you do in my shoes?
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