Some Mortgage Modifications Have Hidden Fees
If you were going to modify your mortgage, common sense says you'd make it more affordable, right? Well, it seems that some lenders don't agree.
More than half of mortgage modifications have either made no change or actually made loans more expensive, according to this story in USA Today. How? It turns out that lenders are adding late fees, property taxes and other penalties into the principal during the modification process - in some cases, making payments bigger than before.
Of the mortgages modified from the beginning of the 2008 through March 31, 2009, 27 percent were unchanged and another 27 percent were actually made higher.
As you can imagine, this is leading to a shocking number of second-time defaults - up to 40 percent. Many borrowers became delinquent because of pre-existing debts or loss of income from unemployment and they just don't have the flexibility to cover rising payments, even for just a little while.
Despite the federal government's $75 billion initiative, mortgage companies are continuing to do what works best for them - not homeowners.
Right now, that means lowering interest rates, which doesn't always lower the principal. A study by the Federal Reserve found that giving loans or grants to homeowners would actually be more beneficial than encouraging modifications.
But the truth is, you don't need a government handout to make the mortgage more affordable. In fact, there's already a government program in place to do just that. It's called bankruptcy and it's written into the Constitution as your right.
If (like most folks) you're carrying a lot of non-mortgage debt - like credit card debt - you've already got your solution. Pay down your balance and free up more money to pay the mortgage - no loan modification required. Filing for bankruptcy can be the most effective way to do it.
To find out if a bankruptcy plan that can melt away your debt, just sign up for a free personal debt analysis with one of our Chicago bankruptcy attorneys. Not only will you free up more money to pay the mortgage, but - unlike with a modification - you'll have more money to allocate to other expenses as well. Now that makes sense.