Bank Loan Modification – Three Myths About Cancelled Loan Modifications
What most people don’t know, though is that in many cases, it wasn’t the lender’s fault.
Myth 1: Most lenders arbitrarily cancelled trial loan modifications to suit their own purposes
At the beginning of the MHA program, the Obama administration understandably wanted to make some fast progress helping people with their mortgage situation. They therefore required lenders to grant trial loan modifications to nearly anyone that signed up, regardless whether or not they were qualified. Lenders were required to grant the trial modification without income documentation or any evidence that the borrower would be able to make the modified payments.
It wasn’t until the time came to convert these loan mods from trial to permanent that the problems began. When lenders requested documentation that would support the income needed to stay current on the modified payments, many borrowers couldn’t provide it because they had lost their jobs. Also, many borrowers had failed to make their trial payments as they agreed to, causing the loan mod to be forfeited. The reality is that in nearly all of the trial modifications that were cancelled the borrowers would not have qualified in the first place.
Myth 2: Lenders are only starting trial bank loan modifications to get a few more payments from homeowners before foreclosing on the property
It’s true, there are many stories in the media about borrowers that have made their trial payments as agreed only to have their trial modification cancelled and the home foreclosed. But in the big picture, those are rare occurrences, and usually a product of poor communication between different departments at the lender. Nobody ever talks about the successful cases. The reality is that lenders don’t want to repossess homes. They are in the business of lending money and generating interest income. If they have a chance to turn a non-performing loan into a loan they are confident will perform for the remaining term. Only if the lender doesn’t believe the borrower will stay current will they decline the permanent loan mod.
Myth 3: Only a few lenders are participating in the MHA program
The reality is just the opposite. Nearly all of the major lenders are participating in MHA. If your lender sells loans to Fannie Mae or Freddie Mac, they are required to participate. Go to our list of banks and lenders participating in the MHA bank loan modification program to see whether your lender is accepting loan modification requests.