Update on loan modifications
Although foreclosure filings across the nation were up almost eighteen percent last quarter compared to the same time last year, foreclosure rates in Seattle, Tacoma, and Bellevue were down nearly twelve percent from the same period a year ago. While this news may be refreshing, foreclosures continue to have adverse effects on property values throughout our community and on homeowners who have been striving to make their monthly mortgage payments in this tough economy.
Many may wonder how foreclosures affect those homeowners who continue to 
pay their mortgages each month. In essence, foreclosures reduce a community’s home prices and have further unfavorable consequences on the economy as a whole. For example, in some studies, foreclosure on a home has been found to reduce the prices of nearby homes by as much as 9 percent—creating the potential that even borrowers who make every payment on their home mortgage suffer from foreclosures in their community[1]. Along with foreclosures, our slow economy’s sharp rise in unemployment has affected the real estate market and continues to affect many homeowners who are struggling to keep up on their mortgage payments.
To combat the grave effects that foreclosures and the economy are having on the real estate market, loan modifications have become increasingly popular among homeowners who are struggling to make their mortgage payments and who do not want to lose their homes. One of the biggest reforms to the current loan modification system has been President Obama’s Homeowner Affordability and Stability Plan (“HASP”), which was passed last March and was enacted to help qualified homeowners restructure and refinance their mortgages to avoid foreclosure. The HASP targets those homeowners with a “high combined mortgage debt compared to income,” or those who are “underwater” on the homes (those with a mortgage balance that is higher than the current market value of their homes).
Because a properly negotiated loan modification may allow a borrower to remain in his home and avoid foreclosure, loan modifications are becoming more and more appealing to many homeowners who need a little help to get through this difficult time. However, there are two important things to remember when considering a loan modification:
1) Loan modifications are more likely to succeed if done early; and
2) Loan modifications are more likely to succeed if done with the assistance of an experienced attorney who has worked directly with lenders on loan modifications.
Borrowers who have only missed a small number of payments or who have not yet missed a payment (but are likely to in the immediate future) are in the best position to have their loan modifications succeed. This is because the financial hardship of the homeowner is likely to have only recently begun and can likely be turned around with prudent planning. Similarly, the earlier the terms of the loan modification are negotiated, the more likely the homeowner will receive a better rate and can immediately begin to reap the benefits of the modification.
Additionally, although loan modification requirements will vary from lender to lender, the documents needed to negotiate a loan modification are generally the same. These required documents may include, but are not limited to, your most recent tax return, a statement of your complete income, your recent pay stubs, and a written affidavit describing the hardship you are experiencing in meeting your financial obligations. Because loan modification requires many of these documents, the earlier you start, the more time you will have to gather these documents. Again, seeking help early on is very important, and, always remember, even if you are unsure about whether you qualify for a loan modification, it is better to ask earlier than later.
Just as a loan modification is more likely to succeed if done early, so too is a loan modification more likely to succeed if done with the assistance of an experienced attorney who has worked directly with lenders. Seeking a loan modification is never an easy process. Besides the necessary documentation required in negotiating a loan modification, modifying a loan can be time-intensive and confusing. Often, you must work with a lender that is dealing with thousands of other homeowners who are attempting to save their homes through the loan modification process. The unfortunate result is that many homeowners are forced to wait for a substantial period of time before being helped, or they are left without any help altogether. With the assistance of an experienced attorney, however, many of these problems can be avoided and you can be represented by someone who has gone through the necessary steps. Again, being represented by someone with experience can be very beneficial.
[1] Homeowner Affordability and Stability Plan Fact Sheet; http://www.treasury.gov/initiatives/eesa/homeowner-affordability-plan/FactSheet.pdf
