Peter Francis Geraci A Bankruptcy Blog - Chapter 7 & 13

The Wall Street Journal reports that the Obama administration has ordered 25 mortgage servicing executives to show in Washington to discuss the Obama plan for "at-risk" borrowers.

Not only are almost 1/2 of those seeking "modifications" of their mortgages not yet delinquent, but few mortgages have been modified.

We knew this.  Mortgage companies are using any excuse to refuse to modify any terms.  The dirty little secret is that you are NOT going to reduce the mortgage balance.  Your only hope is to modify into a fixed rate loan, and perhaps roll any past due payments into the loan.

For homeowners who owe more than the house is worth, asking for a "modification" is a waste of time.  Reducing an interest rate even by 2% will reduce the payment only a couple hundred a month.  Mortgage companies will NOT reduce the mortgage balance.

On top of their refusal to modify balances, mortgage companies are making up bizarre excuses such as "We did not send your bankruptcy attorney a reaffirmation, so you can't modify your mortgage"  What nonsense.  Only the mortgage company can send a reaffirmation, and they routinely don't, and it has nothing to do with "modification" anyway.

Mortgage companies are also telling homeowners that are current to stop paying their mortgage, so "we can consider modifying it."   Unbelievable!  Don't do it!  They will file a foreclosure suit if you do.

As usual, most people are ignorant of bankruptcy laws, and think moneylenders are their best friends.  They actually think being in debt is good!  So they don't file Chapter 7 and eliminate their credit cards and unsecured debt so they can concentrate on their mortgages.  And they don't file Chapter 13 to stop foreclosure, they walk away from their homes.

Sadly, we see a lot of people who never should have been approved for such a large mortage: people making $60,000.00 a year with 2 kids cannot afford a mortgage of 4 times gross income: $250,000 to repay plus real estate taxes and insurance, even if they have no other debt. 

But if you are worried about paying your mortgage, your best option may be to file Chapter 7 and eliminate all the other debt you can.