Mortgage Counselors

Our previous post showed that approximately 25% of calls to the New Jersey Mortgage Modification hotline have been referred to mortgage counselors. Who are these counselors and what are they doing? Well, The Record brings up a glimpse at some of the work that they do in an article titled Up to bat in the foreclosure game. Lets take a look -

[Michael Esposito of Elmwood Park] and his wife, Marta, were in danger of losing their two-family home until Judy Brzuskiewicz, a counselor at the non-profit New Jersey Citizen Action, got their lender to accept $7,500 to wipe out a $65,000 second mortgage.

...

Counselors like Brzuskiewicz are stepping up to bat a lot these days, as a wave of foreclosure actions hit homeowners who put their houses on the line and piled up debt during the housing boom.

...

In the best scenario, the loan counselor can renegotiate the mortgage to obtain a lower interest rate or even have some of the principal payments forgiven or added to the end of the mortgage payback period.

But in more than half of cases, the housing counselors can’t help the homeowners keep their homes, [Citizen Action head Phyllis] Salowe-Kaye said. The houses end up being turned over to the lender or sold to cover the mortgage debt — sometimes in a short sale, for less than is owed to the lender. Many end up in foreclosure.

...

Many of [counselor Michael Thurston's] clients, he said, have lost their jobs or are underemployed. Those are difficult cases, because simply asking for a lower interest rate or restructured mortgage usually isn’t enough.

"If you’re unemployed, regardless of what your interest rate is or whether it’s an adjustable-rate mortgage, you can’t pay it," Thurston said.

First, if you are unemployed at the time of the modification it is basically a non-starter. You are automatically lumped with the majority who are not going to keep their homes.

Second, even working with a counselor there is more than a 50% chance that you will still be leaving your property - whether through short sale or foreclosure. And remember what the FICO worker said - depending on how a short sale is reported it could do as much credit score damage as an actual foreclosure!

Lastly, reader beachdude provides a good source and summary of what a mortgage modification means -

A Mortgage Modification is a process whereby a home owner's mortgage is modified and both the lender and homeowner are bound by the new terms of that mortgage.

Most common mortgage modification options are listed below:

• lowering the mortgage interest rate
• reducing the mortgage principal balance
• fixing adjustable interest rates within the mortgage
• increasing the loan term throughout the mortgage
• forgiveness of payment defaults and fees
• or any combination of the above

But be very careful - here are some results from the National Association of Consumer Bankruptcy Attorneys statement -

• When loan modifications are written, fewer than one in 10 of them result in a reduced principal loan balance.

• More than half of loan modifications roll unpaid interest and fees into larger, more drawn-out debt on the back end of the mortgage.

• Only 35 percent of mortgage modifications reduce monthly payment burdens for homeowners.

• A full 45 percent of loan modifications are packaged with increased payments.

And a list of mortgage modification non-starters -

• Unemployed
• Multiple Property Owners
• Piggyback Loans
• Lenders still not set up for Modifications
• Lenders fear lawsuits from Investors

Not on the list but also many time HELOCs can become a roadblock to modifications as well. If you have one or more of the above do not expect to get help from a credit counselor...