Mortgage Modifications Can Hurt Rather than Help Strapped Homeowners!
Banking regulators recently reported that of the mortgages modified in the U.S. between January 1, 2008 through March 31, 2009, monthly payments for the homeowner increased on 27% of the loans modified and were left unchanged on an additional 27.5%. Many homeowners have fallen behind in payments due to rising unemployment. Unemployment figures have reached 12% in some states. The deflation of home values has caused many homeowners, around 32% nationwide, to be ‘upside-down’ in their mortgages, meaning they owe more than the home would currently sell for.
While modification of home loans that results in lower payments through interest rate reduction can alieviate some of the budget stress on a delinquent homeowner, if the principal balance of the loan is increased, as is the case with most modifications, the borrower may experience additional hardship in the future by having increased his/her overall debt. If the home value is already deflated and the principal balance is increased, the homeowner may never really recover financially.