Some Common Myths About Loan Modification

Myth:  You have to be late on your mortgage payments to qualify for a loan modification.

Fact:  No, a home owner does not have to be late to qualify for a loan modification, however if you are late, then it will give you more leverage as your lender will be more motivated to work with you.  Lenders have a priority list, with people in foreclosure on top and people on time at the bottom.

Myth: Loan modifications will reduce the amount owed on your mortgage, if you owe more than your home is worth.

Fact:  This is a partial myth as getting a loan modification can reduce the amount owed on your mortgage, but only is very rare cases.  If you have a second mortgage with a different lender than your first, then this is more common, but for 1st mortgages it’s very rare.  Lenders are very reluctant to do principle reductions.

Myth:  A load modification will have a negative impact on my credit report.

Fact:  No, loan modification will not impact your credit score negatively, so if you are on time with your payments then you won’t see any effects to your credit score, however if you are late on your payments then that’s another story, but part of the negotiations could result in getting late payments removed from your credit report.

Myth: Home owners CANNOT negotiate a loan modification on their own

Fact:  Yes as a home owner, they can negotiate with their mortgage company themselves.  Similar to how some people act as their own accountants or legal representation, some people are knowledgeable enough about mortgage education that they have no problem negotiating with their mortgage company on their own.

However, for some the term "loan modification" is intimidating and a confusing term. If the home owner finds themselves in this category, they may find dealing with their mortgage company to be a frustrating experience

Myth:  Your Lender wants your home

Fact:  No, especially in Florida where majority of home owners owe more than their home is worth.  They could get a house back and lose hundreds of thousands of dollars. Or, they could work with this family so that the family could stay in the house.

On the one hand, the lender loses hundreds of thousands. On the other hand, the lender doesn't have these massive write offs. Which choice would you make if you were the lender?

Exactly, the lender would love to work things out with these people if at all possible.

Myth:  A loan modification will eliminate all late payments and fees.

Fact:  A loan modification will not eliminate instead, the lender will take the delinquent amounts, the late payments and fees, and tack them onto the loan balance. Now the homeowners no longer have to cough up all the payments and late fees and charges to bring the loan current. The lender will make the loan current by rolling up all the past due amounts into the loan.  As a result your loan balance will increase.