Today it has become impossible for many people to refinance a mortgage. And if you’ve got one of the interest-only loans that were so popular a few years ago, you may be faced with much higher payments, when your loan resets and you start paying off the loan. It will usually be higher because the interest is now figured on a shorter term. For instance, if you paid interest- only on a 30 year loan for 5 years, you will now be paying off your loan plus interest based on the current interest rate with a 25-year payoff.nnSo modifying your loan to extend the no-interest period or lower the amount you pay each month might be appealing. But unless you really are on the brink of financial disaster, don’t do it. That’s what I discovered today when I spoke to a second mortgage broker about doing a loan modification — a little like getting a second opinion after your doctor has recommended radical surgery and the second doctor says you just need medications and rest — there’s no need for surgery at all.nnLike many people, although I had been regularly paying my mortgage and refinancing from time to time to get a better rate, I found there was no way I could qualify for a refi based on the greater restrictions on mortgages today. For example, if you’re self-employed, you can no longer use stated income; you have to show your last few tax returns, and the loan underwriters look at the net income, not the gross. So while the net may be great for minimizing your taxes, it can be terrible when you are applying for a loan and need credit.nnSo enter the government’s mortgage modification program. It certainly seemed enticing when one mortgagebroker told me I could no longer qualify for a refi. Instead, “call your mortgage company’s loss mitigation department,” advised. It didn’t help that I thought she said the “loss litigation” department, and the call center person who answered said she never heard of that — though down the road “loss
litigation” might be the appropriate term for this.nnIn any case, I finally did get transferred to the right department, where I was advised to call back after I obtained assorted documents. Among them was a letter pleading hardship as the reason I needed my loan modified, a statement of income and expenses for the last month showing that my high expenses relative to income made it difficult to pay the loan, my two most recent bank statements, and my tax returns for the last year.nnSo I duly put these documents together, thinking these would certainly help me qualify, particularly since in the last month I had borrowed heavily from my equity line to invest in a film project. At the same time, I was still paying for an expensive apartment in Los Angeles, which I rented for two years when I still owned a very successful business, which I sold to go into assorted writing and film projects. Thus, together, I thought, these documents would make a compeling case that I definitely needed help with modifying my mortgage, because my expenses exceeded my income by nearly $25,000. The more the better, I thought.nnBut fortunately, before I submitted anything, I met with the second broker, who explained that the modification program is really a last resort for people who are not only desperate, but can show they have some ongoing source of income, so they can pay off a loan if their monthly payment is reduced temporarily. Otherwise, the bank would end up with a foreclosed property they can’t sell, so it’s better to get less and keep the home owner in the home.nnBut if your financial situation looks hopeless, so you seem unlikely to be able to pay at all, then the banks have no motivation to modify anything. For instance, if you are between projects or starting up a new business, using your equity line and credit cards to provide the cash until things kick off, even applying for a loan modification could be a disaster for you. As the mortgage broker told me, there’s no way I was likely to get a loan modification if my payments were current and if I showed a net income loss each month as a self-employed entrepreneur. And worse, just by applying, I could lower my credit rating, and the credit card companies could end up reducing my credit line or canceling my cards, because they were now taking even more of a risk.nnSo the bottom line is that it’s better to keep paying an increased mortgage rate, even if I had to borrow on my credit line to do so than to try to pay less by seeking a modified loan. “It’s really only something to do if you are truly desperate and on the verge of losing your house, not just to try to pay less. The penalty for doing so is just too great. You could ruin your credit, and then not even get your loan modified.”nnThus, I wanted to pass on the warning to others. Don’t fall for enticements of lowering your mortgage payments with a modified loan, unless this really is a last resort for you. Instead, do what you can to increase your income, such as by finding more work — a topic I’ve written about in other blogs, in a recently published book: WANT IT, SEE IT, GET IT!, and in a new e-book I’ve written: 17 TOP SECRETS FOR KEEPING YOUR JOB OR FINDING NEW WORK TODAY — out in about a week.nn* * * * * * * * *nnCopyright 2009 Gini Graham Scott.
http://www.ginigrahamscott.com.nnIf you are interested in syndicating this content, please contact me at
ginigrahamscott@changemakersproductions.com.