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If you’re having difficulty paying your existing home loan in the context of changes in your income or in the market generally, there are a number of options to consider. You should never assume that your only route out is to lose your home – there are a number of possible solutions to help you stay in your home, and move to a more sustainable loan structure.
Ultimately, loan modification plans that can help you to meet gaps in your existing terms are determined by negotiations between you and your lending institution. Most lenders have loan negotiators who work with borrowers to negotiate new terms, or they may decide against re-negotiation in certain cases. Because it is in your lender’s and mortgage servicers best interests to help you stay active on your loan and there is an extreme mortgage crisis, an increasing numbers of lenders are considering loan modification plans on a wholesale basis.
Such as in the recent FDIC takeover of Indymac and Sheila Bair’s subsequent quick implementation of her highly popular loan modification program.
I am going to profile some of the recent high profile loan modifications from large banks to give you a sense of how to approach the issue and what to expect. Keep in mind that every individual’s situation is unique, and these are just examples to help you understand the broader market.
A recent move by bank Indy Mac to refinance the majority of its mortgages led to a large loan modification offer. Now known as Indy Mac Federal Bank after the FDIC took control of the bank earlier this year in July to prevent losses, Indy Mac has offered many home owners a reduction in interest payments to help them keep in their homes and avoid foreclosures. Estimates suggest that thousands of home owners were made eligible for the loan modification program (see Business Week).
The facts are that whether it is the FDIC or a private mortgage servicer,. they are still very selective in offering mass modifications, so you may still have to negotiate individual terms.
In the case of Indy Mac, the bank estimated that monthly mortgage payments shouldn’t exceed 38% of a borrowers gross income – what is difficult is that it may be a simultaneous case of falling incomes met by rising interest rates which further complicates the matter.
Many banks will reach out to delinquent borrowers using a form letter, but you should always make an effort to connect with a personal banker so you can get a deal best suited to your needs. You still retain the power of walking away from your loan terms, even if you take a hit on your credit rating, so make sure the negotiations are fair and that the new terms are actually benefiting you – many banks will offer short term relief by lowering interest rates for several months, but often you can get a longer term adjustment if you negotiate.
Countrywide, the nation’s largest private lender now owned by Bank of America, has also instituted a mass loan modification program. While the lender has historically been difficult to deal with, it’s possible to reach out to Countrywide, a non-profit and get a personal banker who will work with you to find a solution.
Ultimately, it’s in both the banks and your interest to come to agreeable terms so that the loan can be met effectively over the long run.
