The Charlotte Observer posted this article today reporting that home loans serviced by Bank of America and Wells Fargo, which received more than $200 million in taxpayer funds for modification, have gone into default.
It’s not just Bank of America and Wells Fargo, though. Borrowers across the country working with HAMP servicers account for $815 million in taxpayer incentives for modifications which are now in default. This accounts for over 163,811 homeowners, according to the article.
Why Are Modifications In Default?
The idea behind the modification is to create a new loan payment for the borrower without having to switch banks and pay for a refinance. The goal typically is to lower the payment, combined with the goal of rolling late fees and missed payments into the new principal balance of the loan. So, why are people defaulting on these modifications?
The article doesn’t speak exactly to this, but the comments section certainly offers some insight. Even when a borrower can reduce their mortgage payment by a few hundred dollars a month, if the same borrower is overwhelmed by credit card bills and escalating interest and payments on them, the mortgage payment is still an unattainable goal each month. This, combined with a job loss or major health expenses in extreme cases, often puts the borrower right back where they started: in default on their mortgage.
Modification and Bankruptcy Can Work Together
Working with your mortgage provider to modify your mortgage is a great option, if it’s going to solve the problem. Most people don’t realize they can simultaneously pursue a mortgage modification while also pursuing a bankruptcy. I’ve had a number of clients modify just prior to filing a bankruptcy, or just after receiving their discharge in a Chapter 7. In these cases, the client ends up with a much lower mortgage payment, AND eliminates hundreds or thousands a month in credit card bills and medical bills.
Find Out Your Options
Call my Charlotte office today to get some questions answered about loan modification and bankruptcy. Knowing your options is the first step toward fixing the problem. Many times I negotiate on behalf of clients for a loan modification, or make a call to the modifying bank, as a way to impress upon the bank the emergency need for a modification. If the modification fails, my client and I are ready to file bankruptcy to save their home.
I can be reached at 704.749.7747 if you’d like to talk.