There’s been a tidal wave lately of folks applying for loan modifications with their mortgage companies. All I can say is to be careful about what you wish for. First, the Obama Administration programs for loan modifications such as HAMP are entirely voluntary on the part of mortgage companies. So you can’t sue the bank or force it to accept a modification. Second, the mortgage companies will often tell homeowners not to make their payments while they are applying for the modifications. So, what’s wrong with this picture? I’ve seen clients go from being one or two months behind on their mortgage to being more than 12 or 15 months delinquent, all while they were waiting for their loan modification applications to be processed. Then they’re rejected and suddenly they’re $15,000 or $20,000 behind on their mortgages. This is what makes Chapter 13 somewhat more difficult, and definitely makes for a higher Chapter 13 payment.
I hear a lot of people say however, “but don’t the mortgage companies want us to save our home. Won’t they lose a lot of money if the house goes into foreclosure?” No, absolutely not. Remember that the mortgage company you deal with is a “mortgage servicer”, and is rarely the bank who originally lent you the money. If your house goes into foreclosure and is sold at a sheriff’s sale, the servicer still gets paid! They don’t lose out in the foreclosure process, and meanwhile, they add a lot of tricky fees all along the way. And don’t even try to get ahold of the original bank who lent you the money. Because your mortgage has likely been assigned to a mortgage “trust”. If you contact that trustee, then they will send you back to your servicer; the trustee’s representatives won’t speak with you.
Before you apply for a mortgage modification, read this article, which is an insider’s perspective of working for a mortgage company’s foreclosure department. So, what do warriors say about ‘knowing your enemy’? If you know what the incentives are for your mortgage company, I mean, servicer, then you’re on your way to understanding your way out of this mess.