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The Truth about Loan Modifications
Link to Power point presentation about this topic: Loan Modifications (only works with Internet Explorer 4.0 and up)
Loan Modifications Coming Up Short
Only about 4 percent of the home owners who signed up for loan modifications—fewer than 31,000—had received them by the end of November, according to figures released Thursday by the U.S. Treasury Department.
Of the largest lenders, Bank of America Corp. had the worst results. It completed a total of 98 modifications. With 7,100, GMAC Mortgage completed the most.
Lenders have blamed their lack of success in part on the failure of borrowers to complete the paperwork necessary for the process.
The government says it will expedite its efforts to push through as many modifications as possible.
Source: Associated Press, Alan Zibel (12/10/2009)Lenders Avoid Loan Modifications
The $75 billion foreclosure prevention effort is unlikely to succeed because mortgage lenders cannot turn a profit on modified loans, concludes a new report by the Federal Reserve Bank of Boston.
Analyzing 665,410 loans originated between 2005 and 2007 that subsequently became seriously delinquent, the Boston Fed found that only 3 percent of borrowers had their loans modified to lower monthly payments, and about 5.5 percent received workouts that did not result in lower payments.
Also, up to 45 percent of approximately 150,000 borrowers who received some kind of aid ended up in arrears again, but about 30 percent of delinquent borrowers were able to fix their problems without help from their lenders.
Source: Boston Globe, Jenifer McKim (07/07/2009)
© Copyright 2009 Information Inc.
A Loan Modification, also known as loan restructuring or mortgage modification.
- Step Rate Loan Modification
- Interest rate is adjusted instead of the term length to make the monthly payments more affordable. A step rate drops the interest rate by up to 3% for the first year and then rises back up until it returns to the original interest rate. A step rate loan modification gives a borrower in financial hardship some short-term relief by reducing the monthly payments for a few years.
- Reduced Rate Loan Modification
- With a reduced rate loan modification the interest rate is lowered for the life of the loan rather than just temporarily like the step rate loan modification.
- Reduced Principle Loan Modification
- In a select few isolated cases the loan amount is reduced in order lower borrowers payments.
- Why Would My Bank Offer Me a Loan Modification?
- Regardless of all the negative talk on the news, banks don’t actually like to foreclose on people’s homes. Banks are in business to make a profit on the money they allowed you to borrow. They’re not in business to sell real estate. This means that they actually make more money by charging you interest for as long as possible rather than paying for the associated legal costs of trying to foreclose on a house that they’ll then need to sell at a loss in order to get a portion of their own money back.
- Obviously it’s in their own interests to try and help you to get yourself back on your feet financially so you can continue to keep making your mortgage repayments so they can keep making a profit …… or so it seems?
Why do you think that the banks are dragging their feet?
Here’s the shocking secret – it’s called a “Shared-Loss” agreement. This agreement is with the FDIC, the Government insurer. The FDIC has this same agreement with around 50 banks. A couple of years ago a bank would do anything rather than get a foreclosed property back. Why now do they want them back?“Shared-Loss” agreement with the FDIC, they now make a profit on every foreclosure they get back. IndyMac’s, and Onewest’s agreement can be found at: http://www.fdic.gov/about/freedom/IndyMacSharedLossAgrmt.pdf
How the Shared Loss Agreement Works
- Here is an example from a One West/IndyMac foreclosure: One West would purchase the first mortgage for 70 percent and the line of credit for 58 percent. However, in the event that IndyMac gets the foreclosed property back, the FDIC covers approximately 80 to 95 percent of the loss, using the original loan amount, not what is currently owed. Many times this means they will make a profit of tens of thousands of dollars on an average foreclosed home. IndyMac/One West does not modify mortgages for this reason, but they also don’t come right out and say it. Also it is important to know that OneWest was created solely for the purpose of absorbing IndyMac. One of the partners, George Soros, was a major supporter of Barack Obama.
- Link to visual presentation: http://www.thinkbigworksmall.com/mypage/archive/1/29027
Ways to go about doing a loan modification
- Do it yourself
- Go through the lender direct
- Engage a non profit agency
- Usually a counseling agency used for guiding you.
- Hire a for profit Agency
- Usually an Attorney
- Can be expensive
Problems and issues with loan modifications
- Usually if you start a loan modification close to the foreclosure date it will still go to foreclosure
- According to a recent study(1), mortgage renegotiations were found to be rare
- Foreclosures initiated on more that half
- Foreclosures completed on almost 30% of delinquent borrowers
Loan Modification Troubles
- Home owners are battling with lenders to keep their homes despite the “Making Home Affordable Plan”
- Loan modifications are not homeowner friendly
- Homeowners often wait 6 months to find out if their loan modification even goes through
- Ending up speaking with multiple people being transferred to different departments and receiving conflicting information
- Loan Modifications not working
- According to a recent report
- At least 57% of Homeowners whose loans were modified missed at least on payment in the nine months after modification
- 35% missed at least 3 payments
- An increasing number of Homeowners are defaulting on their loans even before they make a payment
- Modifications are just band aids
We specialize in Short sales
- Majority of mods are just temporary fixes
- Sometimes loan modifications just delay the foreclosure process
- The end result is the homeowners still can not afford the payments and they lose their homes in the end
- The real problem
- Borrowers were put into loans that they were never going to be able to afford
- Now they are paying on an asset that is worth far less than owed
- We can assist you with your loan modification during the short sale process
- Many times the short sale will prompt the bank to process the loan modification
- Most times the loan modification will be offered at or near your short sale closing.
- Short sales will be a lower credit risk
- Short sale will postpone foreclosure
Take action and make an appointment with us today and get yourself started on the path to financial recovery. Click here to download a complimentary free report on Foreclosure Vs. Short Sale Homeowner Consequences.
Our team has specialized training on helping homeowners who may be facing foreclosure. Please contact us today for a no cost confidential consultation.
We can be reached at: 801-205-3500.
If you or someone you know is looking at buying or selling distressed property…rely on the experts, Utah Team – The Distressed Property Experts!
Note: The information provided is for informational purposes. No legal advise is given or implied. Please check with a qualified attorney in your area.
Source: I am here to help … in any way I can.Marty Gale, CDPE, AB, CRS, e-Pro, SFR
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Martin & Laurie Gale - CDPE, REO, SHORT SALE AND FORECLOSURE TEAM 1-877-898-9502 Toll Free RE/MAX METRO Salt Lake City, Utah www.UtahTeam.com - Saving Families From Foreclosure
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