Thursday, September 22, 2011
What Seniors Should Know before Modifying Mortgage
RISMEDIA, August 30, 2010—(MCT)—Maria Olmo doesn’t like her chances of paying off her new, 40-year mortgage. “I’ll die before it’s paid off,” said Olmo, who got her 30-year mortgage modified because she was at risk of losing her home to foreclosure. “This is the most ridiculous thing I’ve heard in years. They didn’t take my age or my income into consideration.” Since last year, companies servicing delinquent mortgages have been under orders from the federal government to modify the loans rather than foreclose on them.
The goal is to cut the monthly mortgage payments so they are less than 30% of the homeowner’s income.
More than half of the 390,000 mortgages already permanently modified through the federal government’s Making Home Affordable Program have lengthened loan terms—in most cases extended from 30 years to 40 years, according to lenders and federal reports.
Just six months earlier, in January, only about 42% of the loans modified at that point had been similarly lengthened. The U.S. Treasury Department has not released the number of struggling homeowners who have been put into 40-year loans, but lenders say that’s the predominant new term for modified mortgages.
Meanwhile, the number of mortgages that have been changed by trimming the principal on “underwater” houses held steady during that time between 27 and 28% of all modifications. All of the modified loans have had their interest rates reduced.
Orlando lawyer Matt Englett, who specializes in foreclosures, said he advises his older clients against lengthening their terms to four decades. “If you’re 60 and you’re in a 40-year note, you’re really just renting it from the bank, and you’re paying more than you would from someone else you could be renting from,” Englett said. “This is what the car dealers sell—they sell payments. That’s what the mortgage industry has gotten into.”
Rocky Stubbs, Chase vice president for homeowner preservation, said lenders participating in federal foreclosure-prevention programs are opting for interest-rate reductions and longer loan terms before principal write-offs because the government called for that specific, stepped approach to modifying home loans.
He noted that mortgage companies are prohibited by the federal Equal Opportunity Credit Act from considering the age of homeowners when putting them into loan products.“We cannot look at the credit application of a 30-year-old customer any differently than we would a 90-year-old customer,” he said during a recent interview.
Homeowners who have agreed to go from a 30-year mortgage to a 40-year home loan can always pay more than the monthly minimum if they want to treat it like a 30-year loan and pay off the mortgage sooner, Stubbs added. The modifications typically don’t have any prepayment penalties.
But in east Orlando, Olmo said she can hardly afford her home’s new, $1,300-a-month loan payments because she is struggling with less income since her husband is now unemployed. Rather than adding years onto the mortgage, she said, her lender should have accepted that the house has lost value and should have cut some of the loan’s principal.
Englett, the foreclosure lawyer, said 40-year loans make little sense financially, particularly for seniors who face paying the upfront interest possibly for the rest of their lives.“If you look at the numbers, if someone is 60 years old and they extend their mortgage to 40 years, oftentimes they’re paying 50 percent more to own the house than they would pay if they were renting in the same neighborhood,” he said. “And when they go to sell, they still won’t have enough to pay it off.”
Despite such warnings, Englett said, most older clients opt for the reduced interest rate and longer term—”they get attached to the house and want to stay there.”
(c) 2010, The Orlando Sentinel (Fla.).
Distributed by McClatchy-Tribune Information Services.