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Posted at 05:30 AM ET, 01/29/2013

Real Estate Matters: Hate your loan modification? It could be worse

Unfortunately, I am stuck with one of the worst monster mega banks for my loan modification. When I applied for the modification, they classifying me as “delinquent” while they were processing my application. Finally, they lowered my interest to 5 percent from 5.75 — much less than the other lenders were willing to do.

Apparently, I cannot apply for refinancing for seven years, and my “bad record” will expire after one year. I get upset every time I need to talk to them. Is there anything I can do?

If you have been a regular reader, you’d have seen the many columns we’ve written on how the banks gave the appearance of trying to help their borrowers with loan modifications while at the same time making their lives worse by destroying their credit histories and credit scores.

Back when lenders started to offer loan modifications, they promised borrowers that if they made three temporary loan modification payments, the modification would become permanent (a sentiment echoed by President Obama).

However, lenders never clearly disclosed (and often denied) that the loan modification process allowed banks to report the lower temporary loan payments as negative information on borrowers’ credit histories.

Having said that, you appear to have received a permanent loan modification. While you might not feel that 5 percent is a great rate, you got something that most other borrowers in your shoes did not. Most who applied for a modification and made temporary lower payments ended up without a permanent loan modification and with a credit history far worse than when they first met with their lenders.

Look at your credit history and see if there is anything else that is hurting your credit score. Go to www.AnnualCreditReport.com and obtain at least one credit history available to you free of charge. The three largest credit reporting bureaus (Experian, Transunion and Equifax) manage this site, and each is required by law to provide you with a free copy of your credit history once a year.

While your credit history is free, getting a copy of your credit score will cost you around $10 — well worth it so you can see a rough approximation of what your lender sees. Once you receive your credit history, you can review it for inconsistencies and mistakes, and you can start to understand whether you can do anything to improve it other than allowing time to pass.

If you clean up your credit history, your credit score will improve. Once your credit score is over 720, you should be able to refinance your loan with a different lender. The real issue is whether you have any equity in your home.

You could have received the loan modification from your lender even if you had little or no equity in your home. That means that your lender modified your loan even if the amount you owed on your home exceeded the value of the home. If you wanted to refinance today and your home’s value was still lower than what you owe the lender, you wouldn’t be able to get a new loan. In fact, the only way you will be able to get a new loan is to wait for your home’s value to go way up or sell the home in a short sale and then buy a new home several years down the road.

Ilyce R. Glink’s latest book is “Buy, Close, Move In! Samuel J. Tamkin is a Chicago-based real estate attorney. If you have questions, you can call Ilyce’s radio show toll-free (800-972-8255) any Sunday from 11 a.m. to 1 p.m. Contact Ilyce and Sam through her Web site, www.thinkglink.com.

By Ilyce R. Glink and Samuel J. Tamkin  |  05:30 AM ET, 01/29/2013

 
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