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Why So Many Loan Modifications Fail and How to Seek Help
For millions of homeowners struggling to pay their mortgage, many are faced with falling home values which makes it hard to either sell or refinance. Therefore, many homeowners make the painful decision to simply walk away rather than fighting to stay afloat and keep their home. Financially speaking, it does make a lot of sense for many underwater homeowners to walk away or short sell because for some, it may take them many years to break even and start to have positive equity. However, not everyone falls in this category. The reasons are many, such as: (1) if you are planning to hold on to your house for a long time, you could break even and then start to have positive equity again; (2) perhaps you have personal goals to hold on to your house because you enjoy having your family living in it. So just because lots of people are walking away does not make it the right answer for everyone. This would be similar to doing what everyone else was doing during the bubble, which was to buy a house because everyone was.
In an effort to help some of these homeowners who wanted to save their home, loan modification programs have become one of the primary rescue effort. Loan modifications help make the mortgage payment more affordable so that people can keep their homes.
Unfortunately, these programs can be very challenging and at times fail to help the homeowners because the process to qualify for one and get approved for one is super complicated.
On one hand, banks make the process very difficult. In fact, some research shows that it was much easier for most people to obtain mortgages when they purchased their homes than it is now to apply for loan modifications. Many believe that banks do not have the proper infrastructure in place to deal with so many loan modification applications. Other believe that the banks are giving people the run-around on purpose.
On the other hand, they are lots of people who apply for loan modifications the wrong way not adequately knowing what they are getting into, or what will be expected of them. They submit their applications and wait for months hoping for the positive answer. Well, for most people, and this is a sad but true fact, if they are not financially pre-qualified they won’t get a positive response. What homeowners need to do is not only demonstrate to investors and lenders that modifying their current loan is more cost-effective than foreclosure, but that they are able to make the new modified payment.
So instead of applying unprepared, it would be better to know ahead of time whether you could qualify for a loan modification. This is vital to know because if you don’t qualify for the new terms, then the modification could be denied, anyway. And if you are not pre-qualified, perhaps fine-tuning your budget, i.e. lowering your debt, taking the train instead of owning the car, could help you get qualified. The decision whether to apply is 100% up to you, but having guidance can save you time and money, and increases your chances of approval for a loan modification. So here are some of the pre-qualification criteria that are considered crucial and this is where you need guidance with:
1. Your front-end debt-to-income ratio must be above 31% of your gross income prior to the modification.
2. Your house target payment, also known as PITIA (principal, interest, taxes, insurance, and association dues), has to be lowered to be at 31%-38% of your gross income after the modification in order to meet the HAMP guidelines. This is done in three steps. (1) Your house payment target is achieved by lowering your interest rate to no more than 2% with a 30 year loan term. (2) If the target is not reached, then your loan term is extended up to 40 years in order to try and reach the new house target payment. (3) The third step is to either provide you with a loan forbearance or a balance reduction if the target payment is not reached in steps 1 and 2. And this is the tricky part. There are relatively few loan modifications that have received a balance reduction. Additionally, as far as the forbearance option goes, this is very relative to your case; there is no size fit all, basically, the loan modification program guidelines do not give one percentage forbearance ratio for everyone.
So now you are wondering if you should become a mathematician in order to figure all the ratios and calculations involved in a loan modification. You sort of do if you are going to figure it out on your own. The alternative option is to seek out help where you can get unbiased, conflict-free analysis for your loan modification potential.
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Why is debt consolidation preferred these days?
Trapped in the complicated world of increasing number of unpaid debts? You may end up in many conditions after this. May be a very bad credit score will lead you to bankruptcy, or you can negotiate with your creditor to settle down an intermediate way of payments but the most used option these days is to apply for debt consolidation that is ask for a bigger debt on a collateral you own (secured loan) with a lesser interest rate. The reasons for opting this choice are many and we& 8217;ll consider the causes of its enhancing demand in the debtors these days.
1. With the demand and luxurious explosion in today& 8217;s life, people find it impossible to adjust the monthly income into a suitable budget and so they have to have debts which remain unpaid due to the same reason. After getting into such a financial crisis they try to find an easy way to get out of this and that is debt consolidation.
2. Financial instability is also another important reason to get trapped in many small loans for daily expanses. It usually is encountered in the sure hope of a better and financially sound future that even becomes far away after this.
3. The ability of people to reduce their debts and also to pay regularly their monthly payments leads them to the complicated world of debt consolidation. People find it difficult to improve their credit score by paying the debts regularly so before bankruptcy this is the last option available to them that is to have debt consolidation.
4. Financial instability is also a reason to get people toward offering their valuables as collaterals for having a debt consolidation. In the previous times, financial stability was not acuity but financial security was. In these days it is getting less reliable that& 8217;s why people are using collaterals like houses and cars etc.
5. Interest rate appears to be a curse for a debtor because it is paying more than your original loan was, so everyone tries to reduce it as much as possible and debt consolidation is considered to be an important tactic to lessen this interest.
Debt consolidation may appear to be a very feasible and convenient option but sometimes it is not. Because it obviously leads you to payment of a huge debt with the extension of duration and you also tend to lose the ownership of whatever you own. Then involvement of debt consolidation companies especially those of a bad repute and non-trust worthy will lead to many complications in the whole matter of payments.