Mortgage Modifications: The Basics
July 11, 2012


By Steven Miner

In 1992, James Carville, then a campaign strategist for future president Bill Clinton, stated “It’s the economy stupid.”  The bottom line is simple—the economy is in dire straits and people are struggling.  People are struggling to pay everything from the food on the table and clothes on their back to the roof over their head.

When the economy was doing well in the late 90s and early 2000s, many Americans purchased a home fulfilling the American dream.  However, this dream quickly became a nightmare with stock market crash of 2008.  Many Americans owe more than the value of their home.  However, homeowners have options, many options in fact, through mortgage modifications.

Currently there are approximately 15 different mortgage modification programs.  These programs are all sponsored by the federal government.  The programs were developed by the Obama Administration in an effort to stabilize the housing market and improve the economy.

The major benefit of these programs is that it allows a borrower to change the terms of his mortgage.  Often, successful candidates can reduce both the principal and/or interest on their mortgage and the monthly amount of the mortgage payments.  Additionally, if a borrower is in arrears on the mortgage, this process may eliminate any of the past arrears or place them at the end of the loan.

How do the lenders/banks benefit?  The lenders benefit because they do not want to foreclose on your property.  One study recently found that it cost lenders nearly $60,000 per mortgage foreclosure and takes 18 months to complete. The lender has a current borrower who is ready, willing, and able to make monthly mortgage payments, so long as the arrearages are restructured and the monthly payments are reduced slightly.  Under the lender’s rationale, getting a little less is better than getting nothing at all given the expense of foreclosing on the property.

Alright, I know what you are thinking—this sounds great, but what’s the catch?  That’s the beauty of these programs—there really are not any catches.  While these programs will not improve an already bad credit score, these programs will NOT hurt a homeowner’s credit score.  Plain and simple, if your credit score was bad to begin with, your credit score will not go down any further.  This IS NOT A BANKRUPTCY.  You are simply renegotiating the terms of your mortgage with the lender.  This is a voluntary process that involves negotiations between the borrower and the lender.

In my next blog post, I will discuss how to determine if you qualify for a mortgage modification.