How We Do It:
The first step in the process of a loan modification is determining which programs you qualify for.
After identifying the best program suited for your particular situation and qualifications, we gather and assemble all of the necessary information for a complete loan modification submission.
We evaluate the estimated value of your home, factoring in your loan amounts, your arrearages, and the estimated loss to the lender should they not modify your loan and foreclose your home.
Due to the fact we have full knowledge and are aware of all new law changes and programs, both forcing and offering incentives to your lender, we possess a cutting-edge ability to negotiate on your behalf.
To date, we have worked with every major lender in America, giving us greater insight into lender requirements; what is being offered and now available; and how these programs are being implemented.
Why Lenders Modify Loans:
Government Incentives:
A number of lenders have received government bailouts and are coincidentally required to offer loan modifications.
Greater Cost in Foreclosing:
Contrary to popular belief, it generally costs the lender more money to foreclose upon a home than it does to simply modify the existing loan and earning a little less profit. Understanding the potential financial losses against your lender, were they to foreclose your home, is critical ammunition in the negotiation process.
Hundreds of lenders have gone out of business and closed their doors due to foreclosures, and those lenders that are left would prefer to modify their loans than follow suit.
Losses incurred by your lender as a result of foreclosure include:
- Lost monthly loan payments
- Lost time and cost trying to sell house in falling market
- Cost to pay for Real Estate Agent, Fees, and Taxes, etc.
Due to the housing market, the average home can take over a year to sell on the market resulting in the lender losing all those monthly payments.
As estimated by Freddie Mac, the costs to lenders pursing a foreclosure costs close to $60,000 on a property, while the cost to homeowners, lenders, surrounding community, and local government can be more than $80,000.
“We truly believe that foreclosure is the worst alternative for all parties concerned and go to great lengths to avoid foreclosure,” Brendan McDonagh, CEO of Illinois-based HSBC Finance and former chief operating officer of HSBC Bank USA in Buffalo, said in March testimony to Congress. “Financially, it is our worst alternative.”
Homeowners should understand this when attempting to negotiate with a lender for a loan modification, short sale, or any other solution. Loss mitigation is intended to reduce the loss on a defaulted loan by working with borrowers to prevent foreclosure of the home. Knowing the cost of a foreclosure to the lender is a powerful piece of information for borrowers looking to improve their financial situation.
Portfolio (Mortgage-backed-securities) Devaluation:
Lenders borrow money from other investors in order to then lend it out to their customers, and coincidentally also have a credit rating just like everyone else. As every foreclosure counts as a bad investment in the lender’s portfolio, each one negatively affects the lender’s credit. Like you, if the lender’s credit rating is poor they are unable to obtain more funding to continue their business.
Your loan is not sold on an individual basis, but rather is incorporated into a portfolio often consisting of thousands of other similar loans. This portfolio is sold and traded in its entirety, its value based on the overall performance of every loan in the portfolio.
Every loan foreclosure within that portfolio devaluates the entire portfolio, often to the point where the lender is unable to sell.
The first step to understanding how and why a loan modification works is to empower yourself with all the knowledge and necessary information you need in order to acquire a secure and successful modification.
Payment reductions range from between 20 to 30 percent. Under the federal government’s Making Home Affordable program, a lender will first reduce the interest rate on your loan to no less than 2 percent, then, if necessary, extend the loan term by up to 40 years to bring the monthly payments down to 38 percent of pre-tax income. The Treasury matches, dollar for dollar, further reductions until the payment is no more than 31 percent of your income. The new interest rate is fixed for five years. Then it ticks up one percent annually until it reaches a predetermined negotiated rate.
