Loan Modifications: Panacea or Catch Phrase?

[font=georgia:6bdbeabb1b][size=18:6bdbeabb1b][color=darkblue:6bdbeabb1b]lately, loan modification[/color:6bdbeabb1b][/size:6bdbeabb1b][/font:6bdbeabb1b][font=arial:6bdbeabb1b] has been almost omnipresent in the news, and rightfully so. thousands of homeowners across america are modifying their mortgages to prevent foreclosure, lower their interest rates, and in some cases, lower the principle balances of their mortgages.

heralded as the new housing boom, “loan modification”, defined as “a process whereby a home owner's mortgage is modified and both lender and homeowner are bound by the new terms” has become almost more a catch phrase than a term. to clear any preconceptions of loan modifications and the loss mitigation process, the results are no panacea, but an amenable agreement between borrower and lender with the ultimate goal of allowing or giving incentive for the borrower to remain in the home while minimizing loss to the lender.

as in any laissez-faire, free market economic system supply will rise to meet a given demand for a good or service. over the duration of the last 3 months, over 500 “loan modification companies” have filed for incorporation throughout the united states, and countless others have opened their doors. there are compelling arguments on both sides for the legitimacy and usefulness of utilizing an attorney group or settlement group to negotiate a modification, however, this article is one of a series of informational resources focused on clarification and understanding of loan modifications, and the loss mitigation process, as well as how loan modifications are achieved, with specific insight into loss mitigation as viewed from the borrower and lender perspective.[/font:6bdbeabb1b]
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[font=georgia:6bdbeabb1b][size=18:6bdbeabb1b][color=darkblue:6bdbeabb1b]its easy to understand the buzz about loan modifications;[/color:6bdbeabb1b][/size:6bdbeabb1b][/font:6bdbeabb1b][font=arial:6bdbeabb1b] loan modifications are a valuable asset in attaining financial stability, and almost anyone can qualify for one once they understand their lender's guidelines for getting the modification done. loan modifications can result in lowering of the interest rate, reducing the principal balance, 'fixing' adjustable interest rates, increasing the loan term, forgiveness of payment defaults & fees, or any combination of these.

[font=georgia][size=18:6bdbeabb1b][color=darkblue:6bdbeabb1b]fundamentally, a loan modification,[/color:6bdbeabb1b][/size:6bdbeabb1b][/font:6bdbeabb1b][font=arial:6bdbeabb1b] as previously stated is an amenable agreement between borrower and lender to prevent loss on both sides. the financial ramifications of a successful negotiation for the borrower are clearly manifest is cases where the borrower's payments have been reduced by half, or $300,000+ of their loan balance has been reduced, or all past due arrears have been forgiven in combination with a drastically lower payment. these cases are rare, but create strong client advocacy adding to the loan modification buzz. typically, after a successful modification, clients will no longer be unable to afford their home, and will have a financial plan moving forward that will allow them to maintain the financial stability achieved through the lowering of their mortgage payments. most major lenders are agreeing to loan modifications between 4.25% and 5.125% for 30 year fixed terms, with exceptions made for clients depending on hardship or other mitigating factors on a case by case basis.

from the lender's perspective, loan modifications typically make sense. case in point: a client owes $300,000 on his mortgage, but his home is only worth $200,000. if the lender were forced to foreclose on the property, the lender would immediately lose $100,000. nationally, foreclosed-on properties are selling on average 23% below market value (zillow), hence the lender would most likely sell the property at $46,000 under-value. on the average $300,000 lien, the lender will pay between $35,000 to $45,000 in junk and legal fees (bank of america). so total, if the lender were to foreclose on the property in this example, the lender could lose $100,000 + $46,000 + $35,000 = $181,000 total. the lender would in all likelihood lose $181,000 on a $300,000 lien. and considering foreclosures take an average 6 months to sell in todays saturated real estate market(zillow), the lender would be stuck with a depreciating asset, that they will lose over $181,000 on, for half a year or longer. lender's have every motivation in most cases to successfully negotiate a modification.

each and every lender is different, and to promote equality, establishes standards across the board for what loans they will or wont modify. in some cases, the lender, or servicer, cannot make the decision whether or not to modify the loan as it has been bundled in a mortgage security, and an investor currently holds the lien. or in some cases, thousands of investors may hold a small portion of a mortgage backed security (wsj).

this is where a good loss mitigation firm can come into play, a housing counselor from the department of housing and urban development, or a loss mitigation specialist at the lender. understanding limitations on income or on hardship can be difficult, and ultimately a loan modification is similar to walking a tight rope; enough hardship has to be shown to justify the modification, yet the borrower must show enough income to qualify for the new payment. speaking with an expert can help with this, reachable at 1-866 760 9099. a recent study found that only 23% of homeowners successfully negotiate modifications on their own (uses), however that number is slowly increasing thanks in part to obama's hope now program, as well as greater incentives in recent legislation for lenders to modify loans and save homeowners.

the only exception to achieving a loan modification through the above process, known as a “hardship based modification” is through an independent attorney performing an objective forensic audit of the mortgage file.

here's what you need to know about the process: a documented audit of your mortgage and a complaint letter is sent to the lender(s) pointing out the potential non-compliance and/or violation of any and all applicable state or federal laws, the "truth in lending act" (tila), or the "real estate settlement and procedures act" (respa).

how does this help achieve loan modifications? violations of respa, tila, and other applicable legislation can carry hefty penalties to the lender, and possibly force the lender to reimburse all illegal fees (if charged), all money paid into the loan to date, and can provide effective leverage against the lender to modify the loan to terrific terms, including a lower interest rate, a lower payment, and a reduction of the amount owed on the mortgage (principle balance reduction). [/font:6bdbeabb1b]
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[font=georgia:6bdbeabb1b][size=18:6bdbeabb1b][color=darkblue:6bdbeabb1b]the buzz regarding loan modifications [/color:6bdbeabb1b][/size:6bdbeabb1b][/font:6bdbeabb1b][font=arial:6bdbeabb1b]will fade in time, and as losses for lenders decrease, lenders will become less prone to grant as lenient or favorable terms on loan modifications. through understanding of loan modifications, and the loss mitigation process, as well as how loan modifications are achieved, with specific insight into loss mitigation as viewed from the borrower and lender perspective, an informed decision can be made whether a loan modification is a plausible or feasible course of action.[/font:6bdbeabb1b]

additional queries for follow up or more information can be directed to "justin@modificationzoom.com". until next week, jb.

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