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Digital News Report – Americans may fall deeper into debt while waiting for their temporary loan modifications to become permanent. Making the problem worse, homeowners can be hit with a large bill at the end of the trial period.
When a trial period is initiated, the loan payments are reduced. The bank still calls the loan delinquent, often affected the person’s credit score. After the trial period, the servicer may still foreclose even if all of the payments were made on-time.
But before the servicer sends the foreclosure notice, they may send a bill for the difference between trial payments and the payments that would have been paid without a modification. The large lump sum will include interest due.
The homeowner may have been better off not filing for a modification. But why would a bank foreclose?
Although homeowners write-out their monthly payment to Bank of America, JPMorgan Chase, or Citibank, the loan may be owned by someone else. The bank may have sold the loan and may just be the servicer, collecting the money and transferring the payments to the owner of the obligation.
Under the loan Home Affordable Modification Program (HAMP), the government may pay the servicer $1,000 to make the loan modification permanent. There is also a yearly incentive of $1,000.
The problem is, the bank may get paid more from the owner of the obligation to file and process the foreclosure paperwork. The incentive is to foreclose on the homeowner, not modify the loan.
This dilemma may be dooming the program. The government had hoped to modify two to three million loans. Now congressional estimates put that number between 700,000 to 800,000.
By Tina Brown