A loan modification is truly the best solution for a person who believes that they can afford their mortgage if only the following two things take place:
- Their mortgage lender declares the loan as being current; and
- Their mortgage lender lowers the monthly mortgage payment.
As for having their mortgage loan being declared current, that is the most pressing of mortgage problems that a person in trouble with their mortgage faces. After all, if you are behind on your mortgage, almost to the point of being sued for foreclosure, you need to first get your head above water and get current on your mortgage. But that begs the question—how will you get current on your mortgage if to do so requires you to not only pay your ongoing monthly mortgage payment, but a few hundred dollars per month on top of that to catch up on the mortgage payments that you missed. In short, playing “catch up” is simply not a realistic option.
Let’s take a look at one option that people use to get caught up on their missed mortgage payments—Chapter 13 bankruptcy. In a Chapter 13, you have three to five years to catch up on your missed mortgage payments, even as you pay your ongoing mortgage payment each month. As if that were not enough, you also pay anywhere from 7-10% to the Chapter 13 Trustee’s office for their administration fees associated with overseeing your mortgage payments. As if it could get any worse, your mortgage loan cannot be modified in a Chapter 13 bankruptcy; your interest rate, monthly mortgage payment, principal loan balance and other terms of your loan, including the duration of your amortization (30 year or 15 year, etc.) stays the same. In fairness, though, Chapter 13 does offer you the ability in some situations to “strip off” a second or third mortgage, which can be a very valuable tool for the homeowner.
In contrast to the Chapter 13 tool, a loan modification through HAMP is usually a much better way to get current on your delinquent loan and thereby keep your home. If you are successful in getting a mortgage modification, then your delinquent mortgage payments are put at the end of the loan or “capitalized.” By so doing, you are now current on not behind on your mortgage. The mortgage modification does not stop there; often the homeowner needs additional assistance in having a lower monthly loan payment. This can be achieved by other tools that HAMP offers, including lowering your interest rate or extending your mortgage amortization period from 30 years to 40 years.
