Compared with Bankruptcy, Mortgage Modifications Do Little to Help Housing Crisis
No one would argue with a lower mortgage payment. Unfortunately, loan modifications aren't the magical solutions they're cracked up to be, say DebtStoppers bankruptcy lawyers.
In recent years, mortgage modifications have become a popular last-ditch effort for homeowners struggling to afford their home loan payments - partly because of President Obama's Home Affordable Modification Program and partly because a large number of foreclosure rescue specialists have popped up to take advantage of desperate consumers.
For a fee (or several), these businesses claim to help homeowners navigate the lengthy and complicated modification process.
In truth, there's no proof that loan modification companies produce better results than those who seek their own modifications.
The fact is, for most consumers who are in danger of losing a home to foreclosure, a modification is too little too late.
In many cases, homeowners don't qualify for help because lenders drag their feet, lose important documents, or find excuses not to approve a modification. Sometimes, modification applications are rejected without any formal notice, resulting in homeowners losing their properties to foreclosure as they wait on word from their bank.
Even those lucky enough to make it through the modification process may not find a solution.
As DebtStoppers senior partner Robert J. Semrad explains, loan modifications reduce interest, not the principal. Since the amount a homeowner owes in the long run is not altered, there is little difference made in monthly payments, rendering any financial relief short-lived.
A bankruptcy plan, on the other hand, has the power to lower total monthly debt payments. So while the amount you pay your lender may not change, you will be paying less for credit card debt, medical bills, personal loans and other expenses.
Furthermore, unlike loan modification, Chapter 13 bankruptcy has the legal power to stop foreclosure thanks to an action called the automatic stay.
Since the housing crisis began, modification has done little to stop the bleeding. Bankruptcy, however, has helped thousands of Americans save their homes. Maybe the most dangerous aspect of loan modification is that it wastes precious time for consumers who could have found a real solution in bankruptcy.
More Blog Entries:
As Bank Fees Soar, Consumers Already Struggling with Debt Search for Solutions: September 24, 2012
Younger Borrowers Make Up Majority of Underwater Homeowners: August 28, 2012
Why Loan Modifications Often Don't Work, by Aleksandra Todorova, Smart Money