Loan Modification Series: PART 2 of 5
Why The Banks Will Lower Your Rate Without Refinancing
My, my, how things have changed . . . . Just a few years ago, real estate prices were booming. "Sold" signs that were once the "norm" have now been replaced with foreclosure signs. Lenders are having difficulty attracting investors because of the enormous bad debt on their books. The never ending spring of fresh consumers who could be enticed with sub-prime mortgage products have gone by the wayside as lenders have gotten trapped between the FDIC and possible loan fraud investigations.
Today, banks are looking for a means to save themselves from the unexpected crash of the sub prime 
mortgage market and they think the solution has come through a new loan correction tool - the loan modification. This tool allows lenders to turn failing loans into positive loans with a few small adjustments. Late fees, unpaid charges for principal or interest may not be wiped away, but can be integrated into the renegotiated loan conditions.
Clients who are having difficulty making their monthly mortgage payment and who fully expect to face foreclosure are offered an opportunity to modify their loans. To make the monthly terms manageable for the homeowner, the lender and borrower begin renegotiation of the present mortgage conditions. Often times, this requires switching into another loan product, for instance, from adjustable (ARM) to fixed rate mortgage, or it could simply be a reduction in the interest rate. Due to the fact that the property is saved from a possible foreclosure and the mortgage is reinstated, the investor has preserved another loan from going bad . . . and thereby increasing their bottom line and alleviating further loss.
Current experiences show that Lenders are not being as accommodating with investor loans, however. Presently, loan modifications on primary residences have seen success. If the borrowers cannot prove that their inability to pay is due to a change in income or that the new loan terms will make it possible for them to keep up with the payments, lenders will most likely reject the modification request and opt for foreclosure. Investors are not going to take a chance on a scenario that is not solid.
Loan Modification is advantageous to both parties involved due to the fact that the bank will not lose their income and the borrower will retain his home, loan and credit standing. While giving up the home may be a good option for some borrowers, modifying the loan is often a better choice for a family who wants to remain in their home and make their home loan work for them.
This issue is no longer isolated to certain areas of the country. It is impacting all. Please look for for PART 3 "Avoiding Foreclosure Through Loan Modifications"
The Loan Modification Series:
Loan Modification Series part 1 of 5 - Big Solution to A Growing Problem
Loan Modification Series part 2 of 5 - Are the Bank Willine to Play?
If you are interested in more information on loan modification, please feel free to contact me and I will put you in touch with one of my preferred Loan Modification Experts that specialize in successful loan modification transactions. Together we will assist you every step of the way. I hope you have found this information useful.
Be sure to visit my website http://www.wisconsinloantips.com for more great information -
Gwenn Tanvas is a Certified Mortgage Planning Specialists who specializes in working with First-Time Home Buyers and Government Programs such as FHA, State and Federal VA and USDA Rural Housing Loans. Visit her website for more information, on-line calculators and a secure on-line application. She is able to assist with transaction throughout the state of Wisconsin. Her offices are located in Appleton, Oshkosh and Green Bay and offers the convenience of one-stop shopping. http://www.WisconsinLoanTips.com or http://www.MortgageProsOfWisconsin.com she can also be reached for comment or to answer questions via email at gwennt@centurytel.net
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I see good and bad to the loan modifications. As you mention, the homeowner gets to keep the property, and the bank gets some money back, good things, BUT, what will this lead to? If homeowners know that they can get their loans reduced by stopping payments, what do you expect they will do? Why should banks, who invested money in the home, be expected now to take less just because prices of homes collapsed? Would you be happy if the bank cut your interest rates on your CD's just because banks are not making as much money now? Of course not. And finally, what does this say to those that worked hard, saved for years and actually did pay off their mortgages? Should banks give them some money back as well? Makes more sense than bailing out those that got in way over their heads, had no intention of living in a house as a home, only as a short term investment. I am all for helping those in need, but I have to believe there is a better way than giving away the bank, literally, to mortgage holders.
What I find truly amazing is most lenders unwillingness to work with borrowers BEFORE they miss a payment. I have worked with several clients now that had loans that were killing them and tried to negotiate with their lender only to get the door slammed in their faces so to speak
However, after they missed two payments, the story changed! Now the lenders were willing to talk to them about loan modifications.
Seems a bit off if you ask me.
I will agree with Brian that the wave of loan modifications that are happening definitely doesn't benefit the people that worked hard, put down a solid chunk of money and are paying on a 30 year fixed. What will be interesting to see is the long term ramifications on loan modifications, since most lenders are not holding loans, but are only servicing loans that they have sold off. Where is that reduction in value going to fall?
Hi Brian: Great response and I agree with many of your points. With the current state of the Real Estate and Finance industries, and everything for that matter, we are either part of the problem, or part of the solution. It is unfortunate that we find ourselves in this state and yes it is a shame that in order to get attention and benefit from a modification one has to prove hardship and stop paying their mortgage in order to play..... In my opinion this entire state can be summed up in one word - GREED!
It is what it is, and if we wish to support our livelihood and be a part of the solution to help turn things around, then we must find resources, educate ourselves pass the information onto all who can benefit and get this industry back on stable ground.
Thanks for the great comment. Make it a great day:)
Thanks for the comment Jacquie: Wouldn't it be great if everyone used common sense? It would appear that the lenders servicing the loan are initially looking at their bread which is the monthly servicing of the loan. Some what of a tunnel vision effect! Perhaps working from and old business model???? All lenders have loss mitigation departments with highly paid employees, but they do not appear to communicate with other departments with broad vision in mind.
I am certain that there are many who simply want something for nothing and will look for an opportunity to take advantage if given the opportunity.; But it is the many who want to make things right, pay their mortgages, stay in the home and weather the storm who are getting the short end of the stick.
It will be very interesting to see how things play out once the governmnets purchase of mortgage backed securities is in full swing. That is another issue yet to be played out. Thanks again for the great comment and make iot a great day!