Having examined quite a few loan modification offers, I have mixed feelings about recommending that my clients accept a mortgage modification. Obviously, if the modification lowers the monthly payment to an amount that the homeowner can afford, it can be an immense financial and emotional relief to the homeowner. But what is he or she agreeing to? A typical Standard Modification Trial Period Plan Notice (“Notice”) states that:
[W]e are offering you an opportunity to enter into a Trial Period Plan for a mortgage modification. This is the first step toward qualifying for a more affordable mortgage payment. It is important that you read this information in its entirety so that you completely understand the actions you need to take to successfully complete the Trial Period Plan to permanently modify your mortgage. (Emphasis added).
So if the homeowner successfully makes the three trial payments, there is still nothing to indicate what the terms of the permanent modification will be. An obvious question prior to accepting a trial modification would be “what are the terms of the permanent mod?” And the seemingly helpful lender has included another sentence in the Notice that says: “If you have any questions about your . . . permanent modification requirements, please contact us at [phone number].” But anyone calling the number will be told that the terms of the permanent modification cannot be determined until after the trial mod has been successfully completed. In other words, “Trust us. Have we ever lied to you before?”
Also, the homeowner should know that he isn’t getting one over on the lender, even with a favorable modification. The lender points out that:
Any difference between the amount of the trial period payments and your regular mortgage payments will be added to the balance of your loan along with any other past due amounts as permitted by your loan documents. While this will increase the total amount that you owe, it should not significantly change the amount of your modified mortgage payment.
So what do I recommend? Well, it’s like playing poker. If you want to see the hole card (the permanent modification), you have to pay to call. If, after the trial period, the permanent monthly payments are higher than expected, the homeowner hasn’t lost anything, and they might just be affordable after all.
The bottom line here is that you only start playing this “hand” when you can’t afford to make your regular monthly payment. There are no guarantees–or even predictability–in the modification process. And if you’re ever served with a foreclosure complaint, seek legal help immediately.