Some people claim that defaulting on a mortgage will put homeowners in the express lane for mortgage modifications. This is a horrible, horribly expensive misconception, says Tina Williams, a housing counselor at the Consumer Credit Counseling Service of Chattanooga in Tennessee. “I have never given this advice, but I see it pitched repeatedly when there is imminent default,” she says. “This is pitched no less by the mortgage lenders themselves.”
While it’s true that some government-backed mortgage-modification programs are available only to people who are delinquent on their mortgage payments, it’s still a bad idea, akin to wrecking a perfectly good car because you want 0% financing on a new vehicle.
Skipping mortgage payments torches your credit score and lets the creditor pile on the penalties — which you’ll still be stuck with even if you do get a modification. “Obviously, this is just adding on late fee after late fee after late fee,” says Jennifer Peters, a counselor at the Consumer Credit Counseling Service of West Georgia/East Alabama.
The biggest risk is that you’ll fail to get a modification; many foreclosed-on homeowners tried in vain to get a modification and wound up losing their house anyway. What’s more, most modification programs available to delinquent borrowers only affect interest rates and loan terms rather than lowering the principal, which mitigates the financial relief.