I have talked to many Oklahoma City distressed homeowners who have taken the route of getting a loan modification rather than a short sale in order to avoid foreclosure. While I admire the tenacity of a homeowner trying to preserve their home from foreclosure there is a very high redefault rate on loan modifications and I wnated to explain why that is so that Oklahoma City area homeowners in default don't make the situation worse rather than better.
First, a loan modification does not take off any principle owed in order ot make the home affordable. Actually it goes in the opposite direction. Lets say you are $10,000 behind on you payments and you do a loan modifcation on a $150,000 balance. The lender starts by adding the $10,000 to the balance owed. Then they take what you should be paying during the modifcation period and add that to the principle so let's say that is another $10,000. When they reset the normal loan period after your courtesy payment period you now owe $170,000, and even if they reset at the same interst rate your payment is now $130 a month or around that higher. If your situation from your harship has not changed can you oay that?
Second, the back end ratio that banks normally use to create a maximun payment on a new loan is thrown out. So if you have other signature loans, and have been using your credit cards to live during this period, studies have shown that with the new payment and monthly bills on time that your backend ratio is typically over 60% of your total gross income. This cannot be a tenable position for you and your family, so until the government makes banks lower the principle which has about as much change of happening as total world peace you now have delayed the inevitable, face foreclosure, and have an even longer wait until you can get another mortgage on a home.
If you are an Oklahoma City homeowner facing foreclosure please contact us so that we can give you your options and be an advocate with you with your lender. After all, they make money off you on the loan modification, and kick the foreclosure down the road. This in my opinion is not in your best interest. If you want a confidential consultation on what a short sale can do for you and avoid your Oklahoma City area home going into foreclosure we are here to help
Joe Pryor & Charlene Humphreys, Distressed Property experts
Origianlly posted at www.avoidforeclosureoklahoma.com