Higher Payment on Loan Modification

We got word last week that a past client’s loan modification was approved. As happy and relieved as they were, my beleaguered clients had to swallow a rough pill: on the terms of the approved loan modification, their mortgage payment would be several hundred dollars higher than their original payment. 

It had been a long process. First, they had a job loss which resulted in their initial default. They were in arrears for almost a year before they could overcome the shock and paralysis and make any headway on a loan modification. All the while they worked like dogs at anything they could find before thankfully re entering the workforce. The trial payments, which were several hundred dollars less then their original payment, started immediately on application to the HAMP process.

It took 10 more months, and they made their trial payments religiously. They were issued a denial once because they allegedly missed payment, which the court referee threw back after given proof all payments were in fact made on time. When the approval came through, it was the same rate and term, and the arrearage was added to the principle, resulting in a higher payment than even their original loan. The bank basically negatively amortized the loan and hit the reset button. 

In their case, they were in a take it or leave it situation; ironically, getting a better job knocked them out of the HAMP program, and the modification was due to the lender’s largess, not the government’s. Since their issue was an inability to write a check for tens of thousands (50k+) of dollars to reinstate and not the amount of their payment, they are going to take it. The only issue they’ll have going forward is if they lose a job again, but that makes them no different than anyone else. 

A few observations:

• Even for sophisticated, educated people with college degrees, the loan mod process is complicated and grueling. 
• Bank staff does little to make the process understandable, probably because in large part the staff themselves don’t get it. 
• If the red tape and vagaries are this much of an ordeal for educated professionals, it must be UberHell for people who aren’t. 
• It is no wonder the re-default rate is so high. People stagger across the finish line and collapse, even in the best of scenarios. 

On the whole in this case however, my people will not lose their house. Disaster was averted. This is one listing I am glad to not get.