For all the publicity being given to banks these days, finally I’m seeing another problem exposed that relates to loan modifications. Here’s what happen:

1) The Homeowners has been approved for a loan modification

2) Bank renegotiates the terms on the loan to give borrower a better mortgage product. However, this product (usually a 30 year fixed product) gives the homeowner a higher payment than the original mortgage payment. This is usually because the homeowner had an interest only product and the loan modification entails paying a principal and interest payment.

In the beginning the modification works because the late payments are put on the back end of the mortgage and the homeowner gets to start fresh. However, the new payment is higher and it is inevitable that the homeowner will fall into the same predicament as what led to the need for the modificatio in the first place.

See the article addressing this issue below:

http://money.cnn.com/2008/12/23/real_estate/new_modifications_same_problems/index.htm?cnn=yes

If you are a homeowner who falls into this category, I recommend that you make sure you can actually affod this new payment before you agree to it. The last thing you want to do is agree to a modification that you cannot afford. Let your mortgage lender know this to see if there are other options available. Some lenders might be willing to give you a 40 year fixed versus a 30 year fixed. While this stretches out the loan for a longer period of time, it does lower the monthly payment and you still pay down the principal on the loan.

If you take one thing away from this posting and the attached article, let it be that you should not agree to something if it is not something you can actually do. I know your anxious to resolve your situation and in some cases, save your home, but you don’t have to agree to the first option presented by your mortgage lender if it is not going to work for you.