Sep 07, 2010

How the Modification Process Can Help Even If You Can't Modify Your Loan

The fact that the Making Home Affordable Modification Program might not work for you doesn't mean you can't benefit from it. (To read about some of the reasons the program isn't working, see my previous blog post Why Hasn't the Make Home Affordable Program Worked?)

You Can Save Money by Not Making Mortgage Payments

First of all, while you are engaged in the modification application process, you won't be expected to pay your mortgage. (In fact, if you are paying your mortgage, many banks will refuse to entertain your modification request on the ground that you obviously don't need it. Talk about a Catch 22!) And as long as you do your part in the modification process -- which means completing and sending all requested paperwork -- most lenders will suspend any foreclosure proceedings they have already initiated.

Delays in the Process Means More Time In Your Home, Payment-Free

If you have decided to use delay as a money-saving tactic by living in your house payment-free as long as possible (see The Foreclosure Survival Guide, by Stephen Elias (Nolo), Chapter 9), misplaced paperwork and repetitive requests for certain documentation will contribute to the delay and provide you with an opportunity to save another couple of months (or more) of mortgage payments. While some lenders may decide to push forward with foreclosure even while they are negotiating with you, most won't. If your modification efforts ultimately fail, but the process takes six months (during which you don't make mortgage payments), your net savings may  be greater than if you received the modification in the first place.

Of course, for people who desperately want to keep their homes, money saved during the modification process won't keep you in your home (assuming you ultimately fail to get the modification you need). But if you are resigned to leaving your home sooner or later, a long and messy modification process gives you time to amass a not-insignificant amount of money to find new shelter when it becomes necessary.

Some of you may consider me overly cynical for suggesting that you take advantage of the modification process in this way. However, as I consistently remind people, the home mortgage industry is run for the benefit of the investors and has never been known for its interest in the well-being of its borrowers, so there is no particular reason for you to be concerned about its health and welfare.

Next up:  How home modifications can help homeowners avoid an accusation of strategic default.