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Unsolicited mortgage modifications: What's the catch?

Homeowners across the country have recently started to receive offers for loan modifications from banks without even having to ask. And while this may be a good choice for the person who knows in the future there may be financial problems, these unsolicited offers have many people wondering what's the catch, and is it a good idea to accept?

When looking at these loan modification offers, it's important to remember that there are of course some benefits to the bank. For example, in the situation where a person has an adjustable rate mortgage, a bank may offer to turn that into a fixed interest rate loan in order to reduce the chance that a person will later end up defaulting and possibly going into foreclosure, which could cost the bank.

But, even though the bank may benefit, the homeowner should not always assume that it would be a win-win situation for everyone, and rather look into how the bank will be reporting the modification, and if there would be any repercussions to the homeowner's tax liability or to their credit score.

Of course, when it comes to any of the repercussions, it's important to remember that a loan modification may still be a more favorable outcome than a foreclosure, and whether or not a person wants to accept one would depend on what their financial situation is both now and in the future.

And while this post focused on those loans that are being unsolicited to homeowners, for those struggling who have not received an offer, there may still be mortgage modifications and other debt relief options that are available.

In the end, the take home message is still the same: When it comes to any kind of offer or debt relief strategy, look into what options are available and what the implications would be before making a final decision.

Source: Fox Business, "Should You Accept an Unsolicited Loan Modification,?" Polyana da Costa, July 29, 2011

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