Beware of Mortgage Modifiers

by Peter G. Miller
April 20th, 2009

Many years ago I ran into someone who did mortgage audits — that means he went through monthly statements in an effort to find out if the lender actually was charging the right interest rate and credit payments properly. He charged a reasonable fee for his services and sometimes found errors that meant thousands of dollars in loan reductions for borrowers.

I bring this up for several reasons.

FHA Loan Basics

First, if you have an FHA mortgage the odds are overwhelming that your account is being properly credited. Why? Because FHA loans come in two basic flavors, fixed and adjustable. Payments for fixed-rate loans are always the same monthly total for principal and interest, you just have to see that the interest level is declining each month while the principal balance is rising.

As to ARMs, the FHA ARM program is about as vanilla as such financing gets, not as simple as with fixed-rate loans but not much harder because the

FHA program used by most folks — 203(b) — does not allow prepayment penalties or negative amortization.

ARM Complexities

Alternatively, if you have an option ARM or some other “affordability” mortgage product I suggest you get out every statement since the loan started to see what you have been charged and why. This is tedious business but if you find an error the numbers in you favor could be big, especially if they date back several years.

Second, for the past few years we have seen tremendous growth in the loan modification and foreclosure prevention business, an industry populated by large numbers of people who say they can make a deal with your lender that will lower your rate and payments. While there ARE some organizations which have successfully helped borrowers modify loans, it’s obvious that many loan modifiers promise more than they can deliver — and some deliver nothing.

FHA Borrower Choices

For FHA borrowers the issue of loan modifications is moot. If you have a good payment record you can get an FHA streamline refinance to obtain a current and hopefully lower rate. If you’ve been having problems then, at last, the government has a $75 billion program in place to help, the newly-announced Making Home Affordable Plan.

HUD has now come out with a one-page brochure that lenders are supposed to give to borrowers. It makes the point repeatedly made here that “due to the over whelming interest in the plan, homeowners are increasingly becoming the target of scammers trying to take advantage of families with false promises and steep fees to provide foreclosure assistance. With President Obama’s plan, a homeowner NEVER has to pay to participate in the program. If you wish to obtain counseling assistance, HUD urges you to contact a local HUD-approved housing counseling agency to ensure they (you) are receiving legitimate information.”

Your Mortgage Options

___If you have an FHA loan and think you might be able to get a better rate, then speak with FHA lenders about a streamline refinance.

___If you have financial problems then contact a HUD-approved counseling agency. You can find a list of counselors on the HUD site or call 800-569-4287.

___ If you’re looking for a mortgage to buy or refinance real estate, consider the FHA program if you cannot put down 20 percent.

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