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Playing chicken with your home lender © Hemera Technologies/Jupiterimages

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Playing chicken with your home lender

It's a conundrum: If you can't get a loan modification unless you're late on your mortgage payments, is it smart to get behind on purpose?

By Bankrate.com

If you've been tempted to skip a few mortgage payments to try to persuade your lender to modify your loan, you may want to resist that temptation. Whether your goal is to stave off foreclosure or just to make your payments more affordable, experts say deliberate delinquency is not as smart as it may seem.

The bottom line is that:

  • If you can make your payment, you should do so.

  • If you can't, you shouldn't.

  • If you're in between, you should get help to assess your situation.

"Back in the day, (lenders) would only provide modifications to people who were significantly behind because that evidenced that they truly needed the loan modified. They were of that mind-set, and they didn't realize the enormity of the problem," says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling in Silver Spring, Md. "But now they've realized that the logic of making someone become delinquent and dig a deep financial hole before you help them was really not good for anyone."

You don't have to be behind

That new thinking can be seen on some, though by no means all, of the lenders' Web sites, which have been updated to suggest, however subtly, that a late payment may no longer be a prerequisite to a loan modification. Here are two examples:

  • Chase's Web site states: "If you are current on your mortgage, but have had (or are facing) a change in personal circumstances, such as an uncontrollable reduction in income or increase in payment that will create a financial hardship, and feel you are at risk of losing your home, your next step will be to determine if you may qualify for loan modification."

  • Bank of America/Countrywide's Web site states: "If you think you might fall behind on your payments or have already missed a payment, our specialists will work with you to determine your eligibility for one or more of these potential solutions: refinancing, extending the term of the loan, interest rate reductions, temporarily freezing monthly mortgage payments, extended repayment schedules (or) decreasing the principal balance of the loan."

Christine Holevas, a spokeswoman for JPMorgan Chase in Chicago, declined to comment on whether homeowners should make a late payment to better their odds of a loan modification. But she reiterated some standard advice: You shouldn't wait until you've missed a payment to contact your loan servicer. Instead, you should pick up the phone as soon as you believe you may be in danger of delinquency.

"If you think you're in trouble, contact your servicer. You do not have to be late. You do not have to have missed a payment. Contact your servicer so they will know and they can start the process," Holevas says.

Missed payments disqualify borrowers

The federal government's new Making Home Affordable plan may be another reason lenders have tweaked their policies with respect to delinquency and loan modifications. The new plan, which includes a loan modification program and a refinance program, offers lenders new incentives to participate.

The loan modification program is open to borrowers who have missed one or more payments, but a missed payment is not a requirement. In fact, the FAQs for this program state that "responsible borrowers who are struggling to remain current on their mortgage payments are eligible if they are at risk of imminent default." Risk of default might involve a mortgage payment that has reset and is no longer affordable, a significant loss of income or other types of hardship.

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The refinance program is open only to homeowners who haven't made a payment more than 30 days late within the past 12 months. The FAQs state that "borrowers who are currently delinquent or have been 30 days overdue more than once during the past 12 months will not qualify."

That means if you deliberately missed a mortgage payment, you've likely disqualified yourself from this program.

Continued: Missed payments wreck credit scores

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Friday, May 08, 2009 6:11:45 AM
I just love how the media keeps touting Savior Obama's Making Home Affordable refinance plan. Due to its details and restrictions we would end up having to pay $7500 out of pocket to refinance. If a homeowner is barely making their payments, and you DO have to be current on your payments to qualify, where is that kind of money supposed to come from? Anybody got a fairy godmother I can borrow? It's all lies!
Friday, May 08, 2009 7:02:06 AM

My husband and I bought our house in 2005.  He passed away unexpectedly in 2007.  We took precautions to protect our mortgage payment but it didn't work the way we intended it to.  Short story, I myself have been making the mortgage payments on my salary and barely making it.  I've contacted Country Wide on several occassions to get help and modify my loan but they will not assist me.  I keep getting no, they can't do it (won't get into the several reasons why).   I've been on time with my payments and have a good credit score.  Honestly, I don't believe in the Making Home Affordable Plan.  It's GARBAGE.  I'm hiring a Financial Solutions firm to negotiate a solution with Country Wide.  I've been handed plenty of BS by Country Wide ... no help for me!

Friday, May 08, 2009 7:17:17 AM
Sure it is good to help those that can't help themselves.  However, for those that helped themselves to big expensive houses they couldn't afford, it should not be a freebie.  What about those of us that are on time and live within our means?  I can not get my 7 1/2% interest rate reduced because I am not delinquent and I have no hardship.  So I will stay in my 25 year old home paying $500 extra a month in interest, while the guy who went in with no down and bought the brand new 5000 sq.ft. house with all the ammenities gets 4%, principal reduction, and gets to skip a few months payments?  THIS IS WRONG, UNFAIR AND UNJUST.  Yeah, I heard that this will "help" me by saving my property's value.  Tell that story walkin, buddy.  Who gets to pay for this bailout, and why should the bad behavior get rewarded with no repercussions at all?
Friday, May 08, 2009 7:22:16 AM
Sorry about your loss.  It is people such as yourself that deserve the help.  Good luck with restructuring.
Friday, May 08, 2009 7:36:13 AM

I find it funny that Chase wouldn't comment on whether or not they advise customers to skip payments in order to qualify for a loan modification because that's EXACTLY what at least 5 representatives told me to do - it was either that, or "deal with it."  Due to the ending of my engagement, I lost 1/2 of my household income and could no longer afford the payment on my home.  I called and called Chase, was constantly put on hold for ridiculous lengths of time, and was told something different by EVERY representative with whom I spoke.

 

I finally retained a lawyer and fought for a modification.  Guess what happened next?  Chase sent me the modification documents, which were dated May 4, 2009.  The postmark was May 5, 2009.  Ready?  The documents AND first "forebearance" payment were due "on or before May 1, 2009, or the agreement would be null and void and foreclosure would proceed." 

 

My credit was flawless prior to dealing with this.  Regardless of how Chase claims they' re "working for and with" their customers, it's a crock.  Now, I have to deal with waiting for them to "fix" their mistakes.  All I can say is, it better be at THEIR expense and not mine!

Friday, May 08, 2009 7:43:56 AM

by the time you do get to qualify as in my case a job injury has put me off work for 11 1/2 months and my wife was laid off from the auto industry, it's too late your in foreclosure and have to vacate the home, this whole obama, hope program is smoke and mirrors especially if you have countrywide the worst lender in US history as your lender,if it sounds to good to be true it probably is. easier to walk away get a rental and the hell with the banks

Friday, May 08, 2009 7:45:34 AM
My husband and I called Chase back in December when his wages were cut and I was laid off knowing we would be facing hardship and they wouldn't work with us until we got behind.  We were never behind all this happened.   Now all they can do for us is cut our payments by around $100.  We are not looking for freebies because times did get hard for us but where is the help when you need it.  We are helping to pay for the bailout, why can't they do more for people who really need it?
Friday, May 08, 2009 7:46:12 AM
as usual the first advice by our lenders says can't help unless delinquent, now can't get help because I am delinquent....screwed again...think a class action is in works here for duplicity and outright untruths(being nice here)...that the lenders' employees on their help lines spew.....each one you talk to tells you something different....latest for me was, had to provide rental letter for room I rent to a friend which I did same day as asked to do so and confirmed with the rep what specifically I needed to provide, ...then get notice 5 days later being dropped from consideration because didn't provide letter ...then told since I don't have a signed pre-printed legal rental agreement 5 pages long,  which was the only acceptable document,  the letter wouldn't be considered.....then told to change the financial info to have the rental income as "other" to avoid the problem.....and it goes on and on.... 
Friday, May 08, 2009 8:03:10 AM
These and other reasons are why banks and other financial institutions are not to be trusted.  They should not have been bailed out because they will not bail you out when you are in need of their help.  This is also true with insurance companies. 
Friday, May 08, 2009 8:12:28 AM
I contacted my mortgage company very early on and they told me that because I am current, there is nothing that they can do for me. I sent emails and made calls - one of the them was so rude I had to hang up the phone. Even when I went delinquent for the first month, I was told that my hardship letter will only be considered if I am THREE(!)  months delinquent at the very least. I asked her what will then happen to my credit and the response was you guess it! Greed has been taken to a whole new level and it will take some time for us all find our collective sanity as it relates to money. It is rather unfortunate that people no longer care about their credit worthiness because survival is at stake. Help us God! 
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