When struggling to cope with household bills due to a loss of work, reduction in working hours, over-time freeze or ill health, identifying a viable source of foreclosure relief is an absolute priority. Mortgage modification involves making a change to the original terms of a loan agreement in order to reduce mortgage payments and improve affordability. Whilst a number of quality private and charitable organizations offer full and comprehensive mortgage relief assistance, some are little more than a scam designed to encourage homeowners to part with money that they can ill-afford to lose.
What is a Mortgage Modification?
The Obama administration has set-aside $75 billion to provide a financial incentive to lenders to offer hard-up homeowners the opportunity to perform a loan modification. This provides a welcome source of foreclosure relief to borrowers, as well as assisting both the housing market and the lender. The lender agrees to reduce the rate of interest or write-off some of the principal in order to reduce mortgage payments to 38% of the borrowers income. The government then covers half of the additional cost in order to further reduce the payment to 31% of income.
Signs of a Mortgage Relief Scam
Homeowners should be careful to avoid foreclosure rescue scams. Below are a list of clear signs that a mortgage modification plan is either going to be a scam or will result in a charge being levied:
- Check to see if a complaint has been registered with the Better Business Bureau, state consumer affairs or attorney general's office.
- Avoid seeking a loan modification as a result of an unsolicited email that purports to represent a government agency. Further signs include poor spelling and grammar, scare tactics and access to government programs that would not be possible without their help and assistance.
- Perform a careful inspection of the web site for signs of a mortgage relief scam. A number of sites use a hyphen or forward slash in front of .gov or .us in order to trick homeowners into believing that it is a source of government support.
- Avoid referral sites where information is provided by the homeowner and referred to a third party who will get in-touch.
- Beware of pushy sales people who attempt to encourage the signing of paperwork or who advise that they can save a home if the deed to the house is signed over to them.
Seek Help with a Loan Modification from a Charity
Stay away from sites promising a free consultation or a money back guarantee. These are sure-fire signs that mortgage relief is not going to be provided without charge. Why else would they be offering a return of money or just a free consultation and not a completely free service? There are several charitable organizations that offer a service that is completely free, such as makinghomeaffordable.gov.
There is a body of research that shows the mortgage modification only serves to temporarily delay loan default. However, a homeowner should seek mortgage relief from a legitimate source to see if reduced monthly payments can help them to avoid foreclosure.
Readers who found this article helpful may also be interested in comparing short selling and foreclosure to determine which is the better option.
Sources
Reynolds, Maura. (Feb 19, 2009). "How the Obama plan will affect homeowners." The LA Times.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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