7 Loan Modification Mistakes – Part 1 of 7 from “WhatsHAFA.com”
Written on April 30, 2010 by Merre Ward
Over the past year and a half, I have received dozens of calls from other realtors and homeowners who have actually received loan modifications from their banks/servicers and are so excited about the terms. But wait …. did you REALLY understand what you were reading? Hmmmm, probably not, because you more than likely never read your original loan documents!
For instance, I have heard many times, “the bank forgave $150,000 of my loan”. Great, sounds like a super deal, but we know that Wachovia is about the only bank actually forgiving principal.
I will ask the homeowner to send me the modification agreement and bigger than snot, I read through the agreement and that bugger of a word pops out at me …. DEFER! Per the HAMP or Home Affordable Modification Program, the banks have a “waterfall system” that allows them to change the loan term to 40 years with a 2% floor on rate. If the borrowers PITI is still not under the 31% guideline then the bank will start “deferring” principal until they can get to the 31% DTI or debt to income ratio. Defer does not mean forgiveness – it means you have to pay it sooner or later. If you really take the time to read the terms of your modification you might be surprised.
Another concern I have is the right the borrower is giving up for any recourse against the bank. The private MBS (mortgage backed securities) that have been sliced and diced into CDO (collateralized debt obligations) tranches and the original promissory note was never properly assigned to the new mortgage holder (beneficiary) leaves a bit of a loop hole for the borrower. Court cases and rulings have been popping up like crazy in Florida and maybe you have heard of the “Show me the Note” court case where the courts ruled in favor of the homeowner because the bank could not produce the proper documents to show that the party foreclosing actually had the right to do so. I just hate seeing the banks continue to get the upper hand when all is said and done. So BEFORE you sign any loan modification, spend a few bucks and have an attorney or your experienced loan officer review the modification terms.
If you have questions about your modification or about HAFA and short selling, please be sure to contact us! We are always here to help!
