Loan Modification-What a Great Strategy to Address the Housing/Mortgage Crisis!
It’s just like calling your buddy up after work. Hey Lender, I am your customer! Remember me?
So if you are underwater on your home the first thing you will want to do is call you lender so you can reminisce with them about how you have been such a great customer and now need to call in a favor for some help. From there you simply follow their instructions and your mortgage crisis has resolution.
Of course now your lender will want as much information about you as possible. Let’s call this discretionary disclosure. There will be many forms and lots of promises. Remember you are a distressed homeowner and we as the lender want to help you through all of this. Please exercise patience throughout the revolving door of lender representatives and their assortment of promises during the process.
After completion of your modification you will receive a reduced payment and any unpaid debt from your delinquency and the adjusted payments will be added to the back of your current mortgage balance. This should make you very happy. You will now be in a position to return to the roll of being a “renter” in your home that you legally own with the full responsibility of home ownership. You will now also have additional covenants to your lender that will require you to ask permission before attempting to sell you home. You will also be reaffirming the mortgage debt if you decide to finalize the modification with your lender. This probably doesn’t matter to you because the miniscule reduction in payment level has allowed you to avoid any immediate pending foreclosure action. What a great strategy! Sounds like a great plan doesn’t it?
This process will take several months to achieve. Many clients will be rejected multiple times for a loan modification before actually achieving an approval. There is no guarantee that the terms of the final approval for your loan modification will meet your expectations. I can pretty much guarantee you one thing. After all the effort you have to go through you will ask yourself this question: Who is this such a great strategy for… me or my lender?
I am making this damming assessment not based on my opinion but on the basis of so many clients that tell us the story of their loan modification efforts. In the end it is truly a great strategy but unfortunately not for you but for you lender.
Let’s look at the macro landscape as it pertains to real estate. There are millions of homes that have already been taken back by the lenders and GSE’s and millions more in the hands of homeowners that are significantly underwater. The lenders as a whole cannot afford to have everyone clamor for a permanent solution at once. The system as we know it would be insolvent. The strategy backed by the banks and the Obama Administration is to create a manageable flow. By keeping millions of homeowners wrapped up in moral character and mentally distant from the reality that they are stuck in a bad investment the problem in real estate is manageable. Lenders earn income and offset charge offs as a normal part of business. The key to a manageable flow is you taking the loan modification bait.
Throughout this process the lender will position themselves to get as much money from you over a several month period and find out as much about you financially as they can so they can pursue you in “recovery” at a later date. Don’t fret, it’s a business. You owe them money and the collateral on their books has no equity to protect them so they need a better plan. From this perspective the loan modification is a winner.
The capitulation point for you is the point after the lender is satisfied but you are not with the terms of the modification solution. This is where you are given an ultimatum to accept the modification or an expedited foreclosure. Many ultimatums will require a down payment of sorts if you disclosed the ability to pay. Its reality and it frankly sucks but it’s a great strategy and good business for your lender.
Alternatively, if you are wise, research the benefits of a Real Estate Short Sale at www.thenegotiatedsolution.com with our free video before you do anything. At the end of the day you need a permanent solution. How the hell are you going to ever get out of a house that is several hundred thousand underwater? It’s a good question. Remember if you buy a stock and it drops 50% it has to rise 100% just for you to get back to even.
We would love to see you stop and avoid foreclosure but we want you to do it the right way.
Blogging from the front line of the housing crisis.
GHunter
