When Do Loan Modifications Work?
A Good Fix for a Select Few...
Are you falling behind on your mortgage payment? Wondering if a loan modification will help? Be prepared for the bank to lump you into one of three categories of modification applicants - only one of which will prove to be profitable for the bank in the long term.
From the bank’s perspective, loan modifications only make sense for borrowers who can not sustain their payments without a modification but who will be able to sustain regular payments under a reduced payment plan.
A second set of distressed borrowers are those who will most likely fall into arrears again even after negotiating a lower payment with the bank. This group of distressed homeowners are likely to lose their home, regardless of a modification, in which case a short sale or foreclosure is ultimately in the best interest of the bank. Any additional delays in this process are ultimately costly to both the bank and the upside down homeowner.
The last group is made up of delinquent borrowers who can most likely catch up on late payments without modification. While this may be difficult for the borrower, if the bank believes they are capable of doing so without a modification, the lender has no real financial incentive to negotiate their loan terms.