A recent joint report released by the Office of the Comptroller of the Currency and the Office of Thrift Supervision has revealed that over 50% of mortgage loan modifications completed in early 2009 have fallen back into default. Many lenders have taken steps to modify loans in an effort to help borrowers facing foreclosure because of high interest rates or monthly payments that are no longer manageable. After a loan is modified, however, the responsibility to stay current with the new monthly payment is the responsibility of the borrower.
Borrowers turn to mortgage loan modifications as a way to lower their monthly mortgage payments while avoiding foreclosure. Most mortgage loan modifications allow a monthly payment to be lowered by lowering the interest rate to a fair amount agreed on by the lender and borrower. If a borrower is not careful, they may find themselves in the same hole of debt they were in prior to their loan modification. The most important thing to remember about a loan modification is that it is not a reward or check issued by the lender, there is no money given by the lender to the borrower, mortgage loan modifications only lower the amount of money a borrower is required to pay to their lender every month. Where many borrowers fail to succeed after a loan modification is in their ability to live within their means after modification approval. Borrowers often see a lower monthly mortgage payment as an excuse to put a down payment on a new car, to buy a new wardrobe, or to update an unnecessary piece of technology in the home, like a television or computer.
When mortgage loan modifications are approved, borrowers are urged to plan accordingly and not use the modification as an excuse for a shopping spree. Once a loan is modified to allow for lower monthly payments, borrowers should do what they can to pay their monthly payments and apply any leftover funds towards the principal of their loan, into an interest earning savings account, or a low risk investment fund.
While it is possible to convince a lender to modify a loan for a second time, borrowers should not test fate. A home is too important of an item to roll the dice on.
The results of the aforementioned federal report should not discourage borrowers from applying for a loan modification if their payments are out of control or if they are facing foreclosure. If help is needed, then assistance should be sought. Borrowers are, however, urged to seek the advice of an experienced mortgage attorney who can negotiate the best modification terms on behalf of the homeowner. Investing in an attorney will more likely allow the homeowner to secure the lowest monthly payment the first time around, which will increase the odds of a homeowner avoiding a loan default in the future. Combining the lowest monthly payment possible with wise spending habits will lower the likelihood of a modified loan falling back into default, and will keep the homeowner from winding up as a statistic in future federal reports.