As many New Jersey homeowners continue to struggle to keep their homes, some are hanging their hopes on a loan modification. However, qualifying for this type of mortgage debt relief could actually make a homeowner’s financial situation worse. This is because many loan modifications are not offered to borrowers until the situation is dire.
In many cases, lenders require a homeowner to be behind in their payments by at least 90 days before a loan modification will even be considered. This means that the individual’s credit score will dramatically fall, which would most likely effect his or her ability to obtain credit in the future. It has been estimated that a mortgage loan that is 90 days past due reduces a person’s credit score by as much as 100 points.
Moreover, lenders may require a trial period during which the homeowner is required to make regular payments. This period is often for three months. At the end of that time, the bank may inform the homeowner that the application will need to be reviewed since regular payments were made. Another set of payments will be required, and once those are made, the bank will rescind the loan modification offer since the homeowner appears to be able to make payments.
Unfortunately, New Jersey homeowners going through this process could find themselves neglecting other bills in order to comply with the lender’s requirements in the hopes of getting lower payments. Therefore, the individual is left with the same mortgage payment, a reduced credit score and possibly an overwhelming amount of debt. Filing for bankruptcy might be a viable alternative for a struggling homeowner. Collection efforts stop during the proceedings, which might give the filer the time and opportunity to keep the home.
Source: Fox News, “Will a loan modification solve your problems?“, Robert Massi, July 17, 2015