Friday Reading: The Right to A Loan Modification

By Harry Sit

Top 10 Ways A Financial Advisor Can Actually Help You by The White Coat Investor

I finally will have a chance to use the Vanguard Financial Plan service for free. It’s great to have someone to call at least for a second opinion. I will let you know how it goes.

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The cost of foreclosure at Marketplace Money

I heard this story on NPR last week. I think the appropriate title should be The Right to a Loan Modification. It featured Marketing Executive Martha Wright who had a custom-built barn-style house on the bay with a $750k mortgage. After her salary was cut in half, she applied for a loan modification five times, still not successful.

Is there a right to a loan modification? I’m puzzled why people seem to think there is one.

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15 vs 30 Yr. Loans: The Added Cost to Retire a 30-Year Loan in 15 by Len Penzo

Blogger Len Penzo looked at the same data as I did in my post about paying a 30-year loan on a 15-year schedule but he reached a completely opposite conclusion. Whom do you agree with? Is the cost of payment flexibility insurance small or large?

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Asset allocation strategy – what we can learn from rules of thumb at The Monevator

"Age in bonds" has worked very well for me. It’s conservative enough that I can ratchet it up a few notches when markets crash. It’s also aggressive enough during good times. It would be perfect if only bond yields are higher!

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SIMPLE ways out of fee-heavy workplace retirement plans by Brent Hunsberger at The Oregonian

If your employer offers a SIMPLE IRA instead of a 401k, the bad news is that your annual contribution limit is lower ($11,500 a year versus $17,000). The good news is that you have an escape hatch if the plan has high fees. After you stay in the plan for two years, you can transfer the money out, whereas in a 401k plan the money has to stay until you change jobs. Also see my previous post In-Service Withdrawal: The Law and The Plan Rules.

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Review of William Bernstein’s new e-book on Lifecycle Investing by Wade Pfau

Wade reviews The Ages of the Investor: A Critical Look at Life-cycle Investing by William Bernstein. I will read the e-book some time.

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Tidy Up Your Financials Before You Flee: A Pre-Vacation Financial Checklist by Matthew Amster-Burton at MintLife

A very timely article as I will go on vacation for a month in July. I will be in South America away from electricity and the Internet. I don’t worry about any bills because they are all on autopay.

Although I receive several offers for guest posts every day, I won’t bother you with those. I will share more thoughts with you after I come back.

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Posted on June 29, 2012 under News. Keywords: , , , .

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Comments

7 Comments on Friday Reading: The Right to A Loan Modification

  1. J on June 29, 2012
     

    This is why I don’t see much of an advantage or point to home ownership in modern times. My dad could do it, because he had the same job in the same location for 30 years. These days, home ownership seems like a lot of hassle for an asset with a “slim to none” real return over inflation (as described in William Bernstein’s INVESTOR’S MANIFESTO).

    My industry has no job security, so I continue to rent. I’m investing my excess taxable savings in total market index funds and I-Bonds before considering property.

  2. David C on June 30, 2012
     

    In my (admittedly worthless) opinion I see the cost for “payment flexibility insurance” as large… but that’s mostly due to the observation (noted in your comment) that the reduced monthly payment is eventually due with interest later on. Now if the “payment flexibility insurance” actually made that $500/month mortgage payment then perhaps I would see the cost as “small.” I was disappointed Len’s comment didn’t really address this point of yours and only fixated on the comparison to auto/homeowners insurance.

    To be fair to Len from reading his other blog posts back in 2009 he changed his mind and doesn’t really believe in prepaying a mortgage anymore at all: he is convinced high interest rates will be here (well certainly in the next decade or two) and is investing/saving the extra principal payments he would make instead (e.g. he is doing exactly you discussed in your June 28th blog post: borrowing @ 30 years and investing the difference).

    Enjoy the vacation :-) .

  3. Dl on July 3, 2012
     

    I find the cost of both a 15 year and 30 year mortgage too high. I’m in a PenFed 5/5, which gives me a lot of upside: a lower rate if rates stay low OR I refi or move in the first 10 years. I simply can’t see paying up for the security of having the same payment for 15 or 30 years.

  4. Wai Yip Tung on July 5, 2012
     

    “Loan modification” is the new euphemism of the day. If someone borrow $100,000 and then negotiate to return only $50,000 to the lender, what do you call this? I call it “request the lender to give me $50,000″. Naturally the lenders are not very receptive to such request. However, calling this “loan modification” mask the real meaning and instead present it as a simple fudge of number that will resolve people’s financial problem.

    Who wouldn’t want to pay back less than you borrow? I never miss a payment on my mortgage. Shouldn’t I get a load modification also? In my view, a reliable and responsible payer like me should be even more eligible.

    My other concern is the wide spread use of the phrase “load modification” is also an indication of the lack of financial literacy of the public.

  5. babar on July 10, 2012
     

    Loan modification of principal reduction types would not happen. But the rate is modification of a underwater mortgage is only fair.

    We got into the mess due to irresponsible lending AND irresponsible borrowing. Irresponsible lenders (banks) got bailed out with taxpayer money. Irresponsible borrowers along with responsible borrowers are left holding the bucket. It’s only fair that the banks now pass along the government’s generosity (near-zero percent loans) to their customers.

    On related note, whitehouse is proposing a new populist program to help a lot of homeowners: http://www.whitehouse.gov/refi

  6. Josh @ Live Well Simply on July 13, 2012
     

    I think there are a lot of folks wishing they could get a loan modification right now. Especially in the hardest hit states like California and Florida. Interesting take on this very political issue.

  7. Royce on August 6, 2012
     

    I do not think there should be loan modification but there could be term modification. If the banks would fit the term of the loan to what the mortagee could afford (ie 40, or 50 years) and reduce the payment to fit their budget, there is no reduction in the mortage amount. Time heals all wounds in real estate.

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