From my experience, calling the bank and trying to get a loan modification is a trap. The entity you are calling is only the servicer of your loan. Your actual loan is backed by investors who actually make up as the real "bank" behind the bank. Therefore, despite your hardship letters and multiple requests to "modify" your loan, the servicer is merely passing that information, if any, to the investors of your loan.
If you are not behind on your payments, there is no incentive for the servicer to do anything for you. I've had to call on clients' behalf numerous times and to different banks. The answer was the same. If you are not "90 days late, there's nothing we can do."
Why? They don't tell us the reasons, but here they are. I know:
1. If you are 90 days late, you can't go somewhere else to refinance. Therefore, at 90 days late, your credit score would have been blemished and you are stuck with that loan with that servicer. Don't they know that you are stuck anyway if you have a prepayment penalty and negative amortization?
2. If you are paying on the loans, even if you claim you are struggling, in the servicer's eyes, you are still making payments and therefore, your loan modification request is just to try to get them to lower your interest rates.
3. If you itemize how deficient you are every month, your loan modification will be denied. You will have to show that you have more income to qualify. But how much more? These servicer reps are very elusive to answer this question and sometimes become defensive. Your question would be why would you ask for a modification if you were not struggling to make the payments? This might be just a plot by the servicer to make the homeowner forego paying other bills just to pay the mortgage on time. But I know the servicer will claim otherwise.
4. If they modify the loan for you, your interest rate might be lowered, but you will have to pay PITI (principal, interest, taxes and insurance) and impound. This new amount might be higher than your current minimum payment.
5. The servicer claims that it cannot modify both the first and second loans. So, what are you supposed to do about the second loan? Well, I've tested one servicer by calling and saying, "I'm calling to let you know that we are going to stop paying on the second loan." They didn't know how to respond! I have put them in a difficult position. The second loan, although held by the same servicer, is likely funded through a different group of investors because of a different set of criteria to qualify for the loan. What else could they do but to try to negotiate with me to lower the payments if I make partial payments and act like a deadbeat for a few months?
I mean if it has to get this far and the servicer continues to claim nothing can be done until 90 days late is reached but I've already bought another house somewhere else and could care less if I lose this one, which is a sinking ship, what could the servicer do? They could try to collect. I mean I'm still paying on the first loan. The first group of investors won't initiate foreclosure because I'm "current".
Also, this makes a difference if your loan is a recourse or non-recourse loan on the impact it will have on you, the borrower.
Does all of this make sense? I'd like to receive input from others who have been placed into this trap. I think I might have found the way out.
-Susan Vanderburgh
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