After the housing bubble burst, millions of Americans found themselves underwater in their mortgages, meaning they owed more to the bank than their houses were currently worth. In this nasty situation, people are still looking for options for making things easier for themselves, particularly because selling a house at a loss leaves the homeowner liable for the balance of the mortgage. One option that gained much publicity was obtaining a loan modification.
A while back, the New York Times reported on a handful of banks that were modifying loan principals of those who had “option ARM” mortgages. However, aside from these lucky few, typical loan modifications only apply to the interest rates and the lengths of the loans. A modified loan usually has a lower interest rate, which reduces monthly payments on the principal, but banks will frequently ask for more payments to compensate. This can help homeowners rebuild equity more quickly because more of their monthly payments go to principal, and hopefully to positive equity.
The federal government created the Home Affordable Mortgage Program (HAMP) to facilitate modifications. The program successfully reduced the median mortgage by 40 percent, which equaled $520 per month. Those who are ineligible for a HAMP modification can still try to negotiate a modification with their lenders. Often they are willing to negotiate if it means keeping loans out of default, but beware modification scams, which appear as offers to help with a mortgage modification for a fee. These are illegal.
Nevertheless, HAMP loans have not reversed the negative equity problem as the median modification resulted in a mortgage of 118 percent the house’s value. This means that a single calamity such as an injury or job loss can eliminate the hard-earned benefits of the loan modification. Many loan modifications still fail.
Mortgage modifications can benefit some people, but it’s important for homeowners to consider all their options, including filing bankruptcy, which can discharge second mortgages with zero equity in them. Bankruptcy also benefits homeowners by protecting them from foreclosure via the automatic stay.
For more questions about mortgage modifications, HAMP, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy lawyers near me Bruce Weiner for a free initial consultation.
