Insidious Loan Modification Practices Plague On-Time And Delinquent Borrowers

Loan modification is one the best ways to get your life back on track. You have a lot of bad debt credit—a new car or a significant balance on that 18-months, no interest credit card you financed that big screen with—and your children need new things for school. Loan modification seems like a great idea, and for many people, it can help them pay down old debt or allow them to save money to build up a college account for kids.

Recently, banks have been approaching people who took a mortgage with an adjustable rate mortgage loan and offering them generous refinancing options. In many cases, these are people who have moderate-good credit and always make their payment on time. However, before you enter into this too good to be true negotiation, you should know a few things about banks—especially the big ones.

Megabanks Look To Pass The Buck

Megabanks and the federal government are carrying loads of toxic assets. What is a toxic asset? During the financial crisis in 2008, big banks were forced to consolidate under the umbrella of even bigger banks to survive. Many of these “smaller” banks faced insolvency if they failed to do so. The result is megabanks, like Chase and Bank of America, have loads of toxic assets on their books. Toxic assets mortgages, many of them subprime, are those that are for more than a house is worth or are in default.

Megabanks now are looking to help people refinance their mortgages so they can get some of the toxic debt off their books. However, it may impact your credit score negatively if you refinance with your bank. Some banks are reporting borrowers’ reduced monthly payments as a failure to pay in full. Credit bureaus record this as strike on your credit.