Is Mortgage Restructuring Safe?
Mortgage restructuring is the process of creating new loan terms with your lender when you can no longer make monthly payments. Restructuring is a common practice for debtors facing foreclosures. Since lenders are interested in receiving profit from the loan, they may offer a compromise with the debtor based on his financial situation. While this can save your house from foreclosure and help you begin to rebuild your credit, mortgage restructuring is not a cure-all and does come with certain dangers.
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Credit Protection
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People may ask for a mortgage restructuring to help salvage their credit. Unfortunately, by the time of a restructuring it is usually too late. Lenders may not consider a restructuring until you have defaulted on your loan. A default is what damages your credit score, so the restructure will not protect your credit. At the most, it can save your house and help you get back on track with monthly payments so you can rebuild your credit, but it does not stop or reverse the original damage.
Scams
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Loan restructuring scams are also a present danger, especially since the real estate market crash begun in 2008. These scams are perpetrated by organizations that offer loan-restructuring programs. Debtors pay fees to become a part of these programs, and the organization may make a few calls but ultimately does not help the debtor. You do not need an intermediary when restructuring your credit. The best organization to contact is your lender, which can actually make decisions on your loan. Avoid anyone who wants to charge you a fee in return for restructuring services.
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Income Levels
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Another danger of restructuring is that it simply will not work. For you to apply successfully for a restructuring, you have to prove that you are facing financial hardship. You must present information about your current income and debt levels to your lender. If you do not have overwhelming debts, or if your income has not dropped significantly since you first received the mortgage, the lender will probably decline to restructure your loan.
Advantages
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Although there are dangers and barriers to successful restructuring, there are also advantages. If you keep up on payments but still manage to convince your lender that you need help, you may be able to get a restructured loan without defaulting, saving your credit. In addition to saving your house from foreclosure, a restructure also lets you dodge a short sale and help repair your relationship with your lender, useful for eventual refinances.
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