I recently heard from a family that has been facing foreclosure, and they finally received the bank’s offer for modification.
While the monthly payment was greatly reduced and is manageable, it took multiple phone calls to the bank, HUD and the mom working up her own amortization schedule to attempt to understand the implications.
The loan would now span more than 40 years and seems to almost double what they originally owed (interest for a longer loan). Even if the housing market improves and they tried to sell the house later, they don’t think they could pay off the debt. (An accountant friend of mine says they would just need to refinance again in five to 10 years or when they were back on their feet and the loan amount would be greatly reduced by reducing the years. I’m still trying to understand it all.)
On the plus side for taking the modification: The family couldn’t rent a place any cheaper. It allows them to stay and get back on their feet. But when it’s time to move, they will either have to short sale or walk away and either way screw up their credit again.
Are families just better off getting out than saddling themselves with 40 years of debt that there’s no way they can ever pay off? Or do they just refinance again and reduce the years back to 20 when they can increase their payment?
Has a loan modification helped your family? Are they always set up where you can’t pay them off or do some help long-term? Is there ever really forgiveness in the modifications?