Loan Modification? Borrower Beware!

There’s a lot of buzz about loan modification, a process where borrower and lender renegotiate the terms of a home loan so that the monthly payments are lowered.  Either the interest rate is reduced, or the repayment term is lengthened, or both.

The federal government, that is, both the administration and Congress, seem to think loan modifications are key to correcting the home loan mess.  We disagree.

In fact, our opinion is that in general, loan modification only adds to the problem.  We read recently where something like 3 out of 4 modified loans re-default within 6 months.  6 months!  What are the numbers after 12 months?  Basically, loan modifications are just extending bad debt further.  This is exaggerating the problem, not solving it.  Still, individual borrowers may get some short-term relief from a loan mod.

But be careful!  We’ve heard some horrible stories about people who still lost their home to foreclosure after paying lots of front money to “professionals” who offered to negotiate a loan mod.  They take your money, do nothing, and then they stop answering the phone.

Always interview more than one lender, ask a lot of questions, and don’t pay anything up front.

3 thoughts on “Loan Modification? Borrower Beware!”

  1. Hi, good post. I have been wondering about this issue,so thanks for posting.

  2. The governement is doing their best to get loan modificed to assist with the mortgage meltdown. Your blog post is very well constructed and we hope the government is able to help. I am adding your blog to my reader so I can keep up with your posts. Thank you.

  3. LOan modifications are key to help the housing market and your blog is informative and enlightening. I

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