All about Loan Modifications.

It's no secret. The U.S. Real Estate market is in the biggest slump since the great depression. When the real estate bubble burst, it sent property values plummeting downward across the nation. The tidal wave of short-term adjustable mortgage loans increasing in payments is upon us and it is causing foreclosures to spread like a dark plague. People cannot refinance because they have no equity in their homes and in many cases owe more than the property is worth, and simultaneously mortgage lenders have tightened up their lending guidelines making a refinance loan all but impossible. Everyone knows someone who is affected by foreclosure. Entire neighborhoods are being compromised by this wretched and hostile process. If just one home goes into foreclosure on an otherwise desirable street, the other properties could see up to a 55% price reductions in their own homes, just from one low-priced sales comp. Foreclosure is devastating to everyone involved, and also negatively affects others peripherally. The saddest part of this is that the large majority of foreclosures are UNNECESSARY.

The LAST thing the lender wants is to own (another) foreclosed home. The lender only wants the income off of their investment and when that income stream stops, in most cases the mortgage lender and servicer will do everything in their power to restart the flow of income even at a reduced rate. This is one of the tragedies of the whole foreclosure epidemic. People are just giving up and walking away from their home without even attempting to do something. There is a dearth of misinformation floating around now and many half-truths about loss mitigation, foreclosure avoidance and loan modifications in general. The bottom line is this - IF A HOMEOWNER BECOMES LATE ON THEIR MORTGAGE PAYMENTS AND THEY CAN SHOW A STEADY SOURCE OF INCOME, THEY STAND AN EXCELLENT CHANCE OF WORKING OUT A SOLUTION WITH THEIR LENDER(S).

There are several solutions to "loss mitigating" (that's bank-speak for avoiding foreclosure). They are-

Loan Modification, whereby the lender agrees to modify the terms of the original loan and in most cases reduce the monthly payments to what the homeowner can afford. Usually this will involve taking the amount of delinquent payments owed and combining them into the existing principal of the mortgage then lowering the interest rate or making the loan otherwise within reach of the homeowners budget. Alot of urban myths are out there about lenders reducing principle balance on mortgages by hundreds of thousands of dollars. This is very rare, most often the balance stays the same or increases by the amount of late payments but the rate will be reduced and will usually become fixed if it is adjustable. Loan Modification is the best option that a financially solvent homeowner who wants to keep their property can hope for.

Repayment Plan, whereby no change is made to the terms, rate or payment of the loan but the amount of late payments is paid back with some kind of agreed-upon plan and when that plan is completed, the loan resumes where it initially was before the delinquency occurred. This can be beneficial for the homeowner if the reason for the delinquency was short-lived and the original loan is on good terms (fixed rate, less than 7%).

Forbearance agreement, whereby the lender agrees to reduce or suspend payments for a certain period of time and then resume the normal billing cycle of the loan. This is most appropriate for short term reductions in income, i.e. loss of a job with the ability to get another job with some certainty.

Deed-in-Lieu of Foreclosure, whereby the borrower had made good faith efforts to sell the property on their own (and in many cases, short sale) but have not gotten any acceptable offers and agrees to deed the property back to the lender and leave. This saves the foreclosure black mark on the homeowners credit report and saves the lender the time and financial expense of going through the full foreclosure process.

Short Sale, whereby the homeowner lists the property for sale at an amount lower than the balance owed on the mortgage(s) on the property. Again, this saves the credit from receiving a foreclosure blemish and saves the lender's time and money in going through with the entire foreclosure process. Many myths are heard about short sales and "great deals" to be had from buyers picking them up for a fraction of their value. The truth is that lenders are very unwilling to short sale without getting something from the homeowner. We have seen lenders demanding that borrowers use other properties as collateral, sign a note guaranteeing the payment of the amount the lender lost, sending six-figure 1099's to the borrower at the end of the tax year and several other dirty tricks to try and recoup their short sale losses. Also worthy of mentioning, short sales usually don't go through in time because the lender has already started the ball rolling on the foreclosure process and their loss mitigator finds an unrealistically priced comparable sale to gauge the properties value and will hold out until they receive that dollar amount, regardless of the realities of the real estate market.

With foreclosure, time is of the essence. The longer the homeowner waits to speak with the lender, the less options are available to them. If you are even one payment behind on your mortgage, you must take action to prevent foreclosure.

Many people ask if they can negotiate a modification/repayment plan/short sale with their lender themselves. The answer is yes, of course someone could do it for themselves. It is not advisable however, unless the person has extensive experience in Real Estate, Mortgage Banking and Servicing and Law. It is much like representing yourself in court without an attorney- totally possible but not a good idea by any one's account. Retaining us to obtain a foreclosure solution is the best choice for anyone in default.