What Your Home Affordable Loan Modification Won’t Do To Reduce Your Debt

While the goal of the Home Affordable Modification Program is to reduce your monthly debt through reducing your mortgage payment the loan modification program has its limits in how it will help you reduce your monthly debt.

Reducing The Amount You Owe On Your Mortgage

Even though one of the published ways that Freddie Mac and Fannie Mae and your mortgage lenders will reduce your mortgage payment is through a principal reduction, it is unlikely in many situations that they’ll use this option to approve a loan modification. Lenders want their money back is the bottom line, so if they can retain how much you owe, but slow how fast you pay them they will likely choose something other than a principal reduction. You are more likely to get a principal reduction if your home is worth more than what you owe to the lender.

You can think of it this way, if you are more likely to end up in default anyway, the lender does not want to give away principal more than once.

Reducing Your Consumer Debt Like Credit Cards

If you are managing your mortgage payment and your other credit card payments but you are overwhelmed with keeping up, your Home Affordable Modification request may run into trouble as the mortgage lender does not want to burden the debt payments of your other outstanding credit. So you may think twice about requesting a mortgage modification just to reduce your over all monthly debt payments just because the program is there. You need a good reason for getting your mortgage modified and too much debt because of bad spending habits is not going to cut it.

Loan Modification While Unemployed

If you lose your job and try to apply for a loan modification before you have found new employment you will most likely have a very difficult time getting your mortgage lender to approve your mortgage modification request. In order to make a loan modification make sense, the lender must be able to show that you make money. If you are not making money they cannot tell how far they should reduce your payment.

Additionally, the point of the modification is to give you a payment you can afford, with no employment – there is no payment you can afford so in the lender’s eyes why should they bother spending time, effort and money on a loan modification if you can’t pay for it anyway?

Had A Prior Loan Modification?

Even though it is becoming more prevalent, having a prior loan modification will most likely limit your ability to get another loan modification approved. The idea of the first loan modification is that it should have corrected your payment and affordability issues. If you come back to your lender for a second loan modification they are going to look very closely at your debt spending habits as well as maybe make some judgment about your having too large of a home/mortgage for your situation. In this case, they would rather get the house back through foreclosure and take their chances at getting their money another way.

If you have questions about your home mortgage payment situation in Arizona, contact one of our Phoenix Arizona Short Sale Realtors to learn about what options you may have for preventing foreclosure.