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Loan Modification. Is it something for you to consider?

I get asked about Loan Modification all the time.  You should get advice from someone other than your lender if you are going to attempt a loan mod. It’s fine to listen to what they have to say, but they are not necessarily going to tell you everything you need to know. You’ll want to know that if you jump through all of these hoops are you likely to get your modification approved, and you are unlikely to get a definitive answer from your lender.

First a word about who loan modifications are NOT for.  They are not for people who are able to refinance.  If you qualify to refinance your mortgage chances are really good that you will not qualify for a loan modification.  You make too much money. Yes, even if you are upside down in your home. The people who will qualify for a loan modification are those who will likely lose their home if they do not get one.  You will not be seriously considered until you go delinquent on your house payment.  Before you do that you should research your options, including the possibility of actually getting approved for a modification.  Of course, if you have no way of making the payment that decision may not be a voluntary one, and is perhaps an indicator that a modification should be attempted.  Not all loans are able to be modified, and the lenders generally do not want to modify your loan because the other alternatives they have may make more economic sense for them.  They are in business to make money, and loan modification generally reduce their income.  Some lenders also have made sweet deal when purchasing the assets of a now defunct bank that make it even less profitable for them since the losses may be essentially insured with your tax dollars.


Risk Based Pricing: Why your credit scores are more important than ever. 

Risk based pricing is not new to the mortgage industry. It was largely the difference between prime, sub-prime, and Alt A paper in years gone by. It is used in auto, health and life insurance, and simply means that people who are deemed more likely to cost the company more will be charged more.  An older person will be charged more than a younger person for life and health insurance simply because they are more likely to use the policy than a younger person.

In mortgages the concept is the same, but has only recently been introduced to the Conventional market in large degree. Those who have less than stellar credit and/or low equity positions or won certain types of property are charged more.   In fact if your credit score is not 740 or above for at least 2 out of the 3 reporting bureaus you will likely have an additional fee charged.  What you are actually charged is based in part on a matrix that takes into account the credit score, loan to value, and other factors.  If your credit score is low, but your equity poison is high (low LTV) These factors may offset and you will have very little adjustment to your rate. Of course, the opposite is true. If your credit score is low and you have very little equity, you may be hit with a large price differential- higher rates and/or fees.

Those who apply this year will start seeing additional disclosures that will tell them if they have be accessed for a higher rate because of these factors. It is nothing to get upset about, it is what it is, but it does bring to light one important fact: Your credit score has never been as important as it is now.  That 740 score I mentioned is not that easy to obtain, and is based upon a computer model that takes into account your payment history, how much credit you have, and how much credit you have remaining among other things.  I recommend that you check your credit at least once a year, and if your scores are not above 740 you should probably talk to me about how you can improve your scores. Sometimes its simply  a matter of rearranging your credit, and sometimes more drastic measures may be required. You won’t know until you look.

If you have a concern, please call us. We do not charge anything for a simple consultation, and often that will be all you need.  Also, beware of products that give you an “estimate “ of what your credit scores will be, rather than you actual credit scores.  I have lots of suggestions, so do not hesitate to give us a call!


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