Getting a loan modification on your mortgage can be a real challenge. But once the bank says yes and offers to modify the terms of your loan, there's yet another challenge to face - deciding whether to accept the offer or not.
At this point, your response may be "Are you nuts?! Of course we'll accept! Do you think after all these weeks of trying to get the bank to say yes, we're just going to say 'no thanks,' and walk away?"
But holding out - at least temporarily - can be in the homeowner's best interest, according to many housing counselors. They say that by automatically accepting the lender's first offer, homeowners in financial difficulty could be setting themselves up for failure.
"The problem is, a lot of servicers tend to put the pressure on and make an (initial) offer that's in their best interest," said Rich Korn, a certified foreclosure intervention counselor with Consumer Credit Counseling Services (CCCS) in Columbus, Ohio. "But it may not be in the borrower's best interest."
Korn said that in doing loan modifications, mortgage servicers often focus on getting a delinquent borrower current on their mortgage and resuming payments as quickly as possible, without fully considering whether the modification will work over the long haul. As a result, he said, many homeowners find themselves falling behind again within just a few months.
Need to consider overall financial picture
Homeowners are often in a panic situation when seeking a loan modification, he said, so they're eager to just get the mortgage problem resolved as quickly as possible. However, they may fail to take into account how their modified mortgage payments fit into their overall financial picture - they may end up being able to keep up on their mortgage payments, but fall behind on their utility or car payments, or get hit with an unexpected expense that can knock their finances off balance again.
In dealing with clients obtaining loan modifications, Korn said he tries to ensure that they enter the loan modification with some sort of financial reserve on hand. Often, this can be as simple as working out an agreement with the lender to postpone the new payment schedule for a month or so to give the homeowner some breathing room to get their finances in order.
Although most lenders will work out loan modifications directly with qualified borrowers (i.e., those who many have fallen behind on their mortgage but still have the ability to meet a modified payment schedule), Korn said it can be helpful to review a proposed loan modification with a credit counselor before committing to the deal. Often, he said, they can help borrowers work out a better deal.
Avoid being pressured
He said borrowers should resist being pressured into signing an agreement immediately, noting that lenders sometimes will sometimes demand that homeowners sign and return a loan modification agreement within 24-48 hours of the offer. But he said there's no reason the offer shouldn't still be good for 2-3 weeks.
"The big thing is, don't panic," he said.
Local certified housing counselors can be found through the Department of Housing and Urban Development (HUD) or your state or community housing agencies and typically offer their services for little or no fee. They are different from so-called loan modification companies that offer to help consumers obtain loan modifications in return for a large fee paid in advance, and which most mortgage and financial advisors urge consumers to avoid.