Loan Modification? Read the Fine Print
JP Morgan Chase announced a new loan modification plan a little over a week ago. With every new press release, a wave of homeowners flood the phone lines, inquiring about the terms of the new program, and wondering if it will help them to avoid foreclosure. Let’s take a closer look.
One of the attention-getting statements in the press release is that they would “halt foreclosures” or impose a “foreclosure moratorium.” This is only partially true. They will only implement this temporary stall on loans that they own. So if they are servicing your loan on behalf of another investor, it will be business as usual, and this pause will not buy you any additional time. Just because you send (sent?) your monthly mortgage payments doesn’t mean that you’ll be helped by this plan.
JP Morgan also plans to open regional “counseling centers” and hire more “loan counselors.” When you hear the word “counselor,” what comes to mind? I looked it up in the dictionary, and it uses words like “advisor” and “advocate” to define the word. Doesn’t the term “counselor” imply that they’re looking out for your best interest? That they’re on your side?
Well, guess again. These self-proclaimed “counselors” are debt collectors. Working for the mortgage company. Not for you. I know that to some people, this may seem obvious, but based on my conversations with homeowners, they have a tendency to take this euphemism at face value, particularly when they’re trying to avoid foreclosure. If they get paid by the mortgage company, they’re not working for you.
Next, they’re planning to offer “pre-qualified modifications.” What is a “pre-qualified” loan modification? Typically, lenders have required borrowers to submit their financial information, their “loan modification package” for review BEFORE they offer a loan workout option to the homeowner. In the “pre-qualified” cases, they use qualifying criteria to screen their loans and decide to whom they want to offer a workout. Then, they ship out something in the mail to the homeowner indicating that they are “pre-qualified.”
Warning: This does NOT mean you will automatically get a loan modification. In most cases, the homeowner will then have to submit their financials, as before, to confirm that you’re a good candidate.
This is seen as innovative: instead of “A,” then “B,” we’re now doing “B” and THEN “A.”
As opposed to puh-TAY-toe this is puh-TAH-toe. This isn’t “zig,” this is “zag.”
Cool, huh? Isn’t this absolutely groundbreaking? No, you say? Well, this earth-shattering approach has gotten Sheila Bair nominated to head up the planned-but-not-yet-approved federal mortgage bailout program. So, somebody thinks it’s great.
Hey… this “pre-qualified” thing sure sounds familiar to me. You remember, back in the old days, when everyone was buying a home? In the late 90’s, the lenders came up with “pre-qualified” home buyers. The prospective home buyer would answer a few questions, and the lender would print out a “pre-qualification” letter. In those days, with homebuyers competing to get a desirable home in a sellers’ market, this official-looking document could mean the difference between having the winning bid and second place (losing the house).
Problem was, it wasn’t worth two cents. Lots of home buyers failed to get that loan they were “pre-qualified” for and soon enough, real estate agents and home sellers got wise and realized it didn’t mean squat.
Then, the industry came up with the “pre-approved” letter, which meant that the home buyer would probably get a loan, subject to a few conditions. Early on, these letters often did not disclose what those conditions were. Later, they started listing things like, “satisfactory appraisal,” etc.
What the pre-approval letter didn’t say is that if sufficient time transpired between their initial application and the time they found a house and got it under contract, they’d have to pull credit again, and possibly update financials. Which, again, could kill the deal.
Also, some borrowers found out later (much later) in the process [like, at the closing table], that they didn’t qualify for the terms they initially discussed with their lender, and that their payments were going to be higher [much higher?] than they’d planned.
That also killed a few deals.
Eventually, people in the real estate business learned quit trusting the lenders and their official-looking “pre-approval” letters. Which is just one reason why many real estate agents needed to take Prozac during the closing process.
At the end of the day, you still have to drop your drawers financially speaking, and if they detect something they don’t like when you turn your head and cough up your docs, they’ll either deny your application or they’ll give you something else that’s NOT a loan modification.
Lastly, did Chase do this because of their “commitiment to help people avoid foreclosure” and “keep people in their homes?” Uh, no. Chase officials stated that this program was designed to limit losses. So, again, IF the loss is greater in doing a loan modification, then you’re still at risk of foreclosure.
You never believed the “bank doesn’t want your home” line, did you?
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