I was speaking with a loan officer today and learned something very interesting about how loan modifications are treated on a credit report. Individuals with loan modifications are treated the same as those with short sales in their past for purposes of obtaining a loan to purchase a home in the future.
Loan Modification = Short Sale for purposes of future mortgage qualifications
The Credit effects of a loan modification are not widely discussed when considering foreclosure prevention alternatives. This likely because homeowners plan on staying in the home for an extended period if the loan modification is successful. However, some homeowners seek a loan modification as a way of reducing payments enough to allow them to rent the property at a market rate without subsidizing the housing of their tenants. In addition, sometimes life changes require a homeowner to move before they anticipated. As a result, it is essential that homeowners understand the impact their successful loan modification will have on their credit.
Merits of a Loan Modification
There is a time and a place for almost everything in this world, a loan modification is no different. For homeowners that wish to stay in their homes until they are paid off at some time in the distant future, a loan modification may be the best and only option available to them.
Loan Modification v. Short Sale or Foreclosure
Make no mistake about it, a loan modification will financially benefit the lender much more than the homeowner in the long run. If a homeowner accepts a loan modification they may be facing the inevitable foreclosure v. short sale option five years from now without the beneficial tax laws that currently help homeowners avoid paying taxes on Mortgage Forgiveness Debt Relief. Because there are very few principal reductions allowed in current loan modifications, homeowners are trapped in financial prison when they accept a loan modification. Instead of biting the bullet and short selling their homes or allowing the bank to sell it in foreclosure, some homeowners choose a “safer” more “comfortable” option, loan modification. Thus, the short term comfort, assuming the bank actually approves the loan modification and doesn’t foreclose on the house while still negotiating “in good faith” for the loan modification, is chosen over the long term benefit of freeing themselves from their underwater mortgage.
Hope for Distressed Homeowners
The foreclosure attorneys at the Wells Law Group are available to guide distressed homeowners through the minefield that has been created for them by the banks and the federal government. Our goal is to empower you with the most accurate information that is available so that you can act and not be acted upon by your lender. We have helped hundreds of Arizona homeowners and we are confident we can help you. Contact us today to set up a free consultation to discuss your options. You may also visit our website www.shortsalecalculator.co to obtain a useful report that will tell you how many years you will be trapped in your home before you break even again.
