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Implications Of A Loan Modification

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October 15^th, 2009

 

As president of the MOS Group with headquarters in Irvine, California, Greg Hebner whose company specializes in loan modification services states that borrowers need to know the implications as a result of going through a loan modification.

 

Mr. Hebner said that the loan modification process will impact as much as 50-100 points off borrowers’ credit rating. This applies especially to borrowers who have experienced short-term unemployment or income interruptions. It is important to determine whether a loan modification is really necessary as once you go through with the process, it will be difficult to rebuild credit rating improvements even though you later experience an income recovery in the near future. Important questions to ponder is to whether if the unemployment you are experiencing is only temporary or will it be better to access funds from savings or rainy fund (if any).

 

In addition, if you do not have any income or do not foresee an income recovery soon, a loan modification will not work for you in the long-term. It will be impossible to modify the loan to 31% of income if the borrower has no income. For many who have enrolled in the trial-modification, experts say that the rate of re-default is as high as 50%. Remember, you are only given 1 chance through the trial modification period. In other words, if you decide to go in for the trial loan-modification and you fail to get pass the permanent stage, you will not be given another chance.

 

Act Quickly

 

When you are at the point of distress in making your mortgage payments, call your servicer immediately. The phone number is available on the monthly statement you receive. Ask for the home-retention department. When you get through, explain your situation and ask if there is anything they can offer you during this period. A short-term forbearance is likely one of the many options they may offer you at this point.

 

If you wait and get to the point where the lender has started foreclosure proceedings, it will be difficult to reverse the process. You should have more options and flexibility if you act early. Whether or not you are current on your loan, your servicer is required to provide you options if you request for help.

 

The New Short-Sale Allowing Homeowners To Stay In Their Homes

 

A short-sale can be another solution for troubled homeowners facing foreclosure. In a short-sale arrangement, the lender agrees to forgive the mortgage amount in exchange for a lower pay-off or an amount lower than the mortgage owed.

 

However, in a regular short-sale situation, the homeowner will lose their home and will have to end up moving elsewhere. Thanks to Infusion Technologies, there is a new kind of short-sale arrangement that will allow homeowners to stay in their homes.

 

Jim Satterwhite who is executive vice president of Infusion Technologies, the parent company of National Quick Sale, says that their company is innovating new ways for homeowners to stay in their homes as renters via a short-sale arrangement.

 

According to Jim Satterwhite, there is an increasing appetite for investors to purchase short-sale properties and then leasing it out to renters who may eventually purchase or buy-back the house. These investors particularly prefer occupied homes as it translates to the property being well maintained. It’s almost beneficial for both parties in this case, investor and short-sale seller to devise a rental agreement.

 

Satterwhite adds that the short-sale investor feels comfortable knowing that the former owner may be a better tenant as it gives them a chance to start over without the implications of a bankruptcy and eviction. “You know they are going to take care of the place”, Satterwhite says.

 

National Quick Sale which receives leads from servicers, are in the position to provide troubled homeowners with free assistance in obtaining short-sale. Many of their customers were previously seeking a loan modification and were frustrated waiting for a response from their servicer. Satterwhite added that there were a lot of people who were not comfortable dealing with their servicer.

 

According to Satterwhite, their goal is to move the pipeline as quickly as possible and expects his company to close 50,000 short-sale deals in 2010. He’s optimistic that business will remain solid for the next 2 to 3 years.

 

Willing To Pay And Stay

 

Steven Home, president of Wingspan Portfolio Advisors in Carrolton, Texas also has their goal set on keeping homeowners in their homes. The firm represents investors who had purchased mortgage loans that were sold by previous investors at a 60% discount.

 

Mr. Home is in the power to negotiate with homeowners, often those who have a commitment to the neighborhood with kids in school or are unwilling to leave for other primary reasons. These investors have more to lose if the homeowners move out of the house as a result of foreclosure. These investors do not want to end up with the house where in most cases is worth less than the loan they paid for even after a 60% discount.

 

For those who are willing to pay, Mr. Home will try to explore a work-out strategy to keep homeowners in their homes. Since the investors had already bought it for a deal of 60% discount, they have more room to accept a lower mortgage payment that will still yield the investor a positive return.   

 

For more information about Steven Home’s company, visit: http://betterborrowers.com

 

How Are We Faring With Foreclosure Help?

 

Loan Modification

 

Since July 2007, more than 5.2 million mortgages have been reworked. About 50% or 2 million of these mortgages were reworked through a loan modification. The workout rate has increased tremendously in 2009 with 2.1 million loans worked-out with 40% under a loan modification.

 

Forbearance

 

Other borrowers who were not helped through a loan modification were offered some form of forbearance where payments were halted or reduced for a period of up to a year.

 

Refinance

 

Fannie Mae and Freddie Mac has refinanced 3.2 troubled mortgages since 2007. According to Jerry McCoy, vice president of Fannie Mae’s servicing division, 260,000 were refinanced under the government’s Home Affordable Refinance Program.

 

Subprime Loans

 

The industry has reworked more than 2.6 million subprime loans since July 2007. However, the rate of these loans being worked-out has reduced in 2009 as delinquencies have moved beyond subprime to prime mortgage.

 

 

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