BANKING WHERE YOU PAY YOUR MORTGAGE MAY BE BAD FOR YOUR FINANCIAL HEALTH

If you have a checking, savings, or other account at the bank to which you make your mortgage payments, you should be aware of the risk.

Consider the following… A man had experienced financial difficulty, and so applied to both his first mortgage company and second mortgage company for loan modifications.

The first mortgage company approved his application and started him on a Making Home Affordable, aka HAMP, trial modification.

The second mortgage company, we’ll call it the Bank of H, would not approve a modification for the second mortgage. Instead, a representative called the borrower and wanted to know when the bank would receive the overdue payments. The borrower explained again he was having financial difficulties, but said things were looking up, as his first mortgage lender had just approved his loan modification request. He said he couldn’t pay the Bank of H right now, but he hoped to get caught up soon and come current with all of his bills.

The next day, the borrower learned that his Bank of H checking account had been emptied. The Bank of H had emptied his checking account and applied all of his funds to amounts due on his second mortgage. This caused many of the borrower’s checks to be dishonored, including his first Trial Period Loan Modification check to his first mortgage lender. That bad check and his inability to replace it on a timely basis caused him to fail the Trial Modification, and therefore become permanently ineligible for a HAMP modification.

If you are behind on your mortgage, the bank may take any money you have on deposit with that bank and apply those funds to the amounts due for your mortgage. This may result in checks you’ve already written being returned for non-sufficient funds in your account. That would likely result in penalties and fees, in addition to the personal embarrassment and the difficulty of trying to come up with the unexpected shortage of funds at a time when you’re already embroiled in severe financial problems.
Is it legal for banks to do this? That is debatable. However, it is important for you to recognize that it is not uncommon for a bank to do this. This is not the only time we’ve seen this happen to someone who is late with mortgage payments.

Be warned, and act accordingly, before your bank acts for you.

ARE YOUR PROBLEMS TEMPORARY OR PERMANENT?

If you’re thinking about applying for a loan modification, without professional help, you should answer the following questions first:

1. Are your financial troubles temporary or permanent?

If you answer “temporary”, as almost everyone believes or wants to believe their financial problems are, you may have just lost your Making Home Affordable loan modification. 

If you answer “permanent”, you may have just lost any other type of loan modification for which you would otherwise have qualified. 

The correct answer is anybody’s guess, but your “guess” may well disqualify you, as it did for one poor guy appearing on the 10 O’clock news a week or so ago. He said “temporary” , and months later he got a rejection letter from his bank. The reason given for the loan modification rejection? ‘Your financial problems are only temporary.’ Permanent or temporary, his problems were sufficient for him to lose his home to foreclosure.

2. Do you receive any child support or alimony/maintenance?

Answering yes to this question can qualify you or disqualify you for a loan modification. Only the review of your financial situation can determine how best to answer this question. Note that you have the option of providing this information for consideration, or not providing it.

3. If you have others living in your home, are you receiving income from them, or are they helping with household expenses?

Again, your financial situation will dictate how best to answer these questions. We never advocate lying or misleading a lender. However, there is some information which you must disclose, and some information which need not be disclosed. There are also different options on how to include this information. You can report reduced household expenses based on the contribution of your boarder toward those expenses, or you can prepare a formal lease even if the boarder is a relative like your son, or you can sometimes include your boarder’s gross monthly income. Only a financial analysis will disclose how best to report or present this information to your lender. The way you present this information to the bank, even though the net financial result to you for having a boarder is the same, could easily determine whether you get your loan modification.

Conclusion: If you don’t know who really owns your loan, if you’re not adept at the necessary financial analysis for a loan modification, if you don’t know the difference between net and gross income, or if you don’t know whether one or the other needs to be higher or lower to qualify for a loan modification, then you shouldn’t be playing this game. It would be a bit like playing poker when you don’t know if a flush beats a straight. Yes, you might get lucky, but there’s a lot at stake in this game.

If you don’t know the answers to the above questions, please make sure and learn them before you call your bank for a loan modification. Also, fair warning… these are not the only tricky questions your banker may ask.