Yesterday, I portrayed a brief overview of the loan modification process and I related that to how both the borrower and the lender can "win". I ended by bringing out three important elements that we would discuss today. These elements:
1.] The Law and How it Affects Doing Loan Modification.
2.] Loan Modification and What it Will Do for the Homeowner.
3.] How Does the Lender "Win"? What Does the Future Hold?
describe the process and bring it all together. As we review this, bear in mind that loan modification is not a science, but rather a unique approach to keeping individuals in their homes by tailoring the process to their particular set of circumstances.
The Law and How it Affects Doing Loan Modification
Loan modification is a complex process as lenders have their own guidelines that make it difficult for borrowers to effectively negotiate their own “work-out”. To make matters more challenging, guidelines are constantly evolving as government regulations are adjusting to current market challenges. Regulators at the Federal and State levels are involved in the process making it significantly more inefficient. Two parts of the law are having a significant effect on how loans are modified. These "Federal Regulations" are the Truth & Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).
TILA protects the borrower from predatory lending practices. It accomplishes this by requiring clear disclosure of key terms and associated costs associated with the loan. RESPA requires similar disclosure regarding closing costs. They both require full disclosure on settlement procedures. Companies that perform loan modification sometimes use TILA & RESPA as negotiating tools when dealing with lenders. If there is obvious negligence or criminal intent, they will refer the client to the DA for review.
Loan Modification and What it Will Do for the Homeowner
If the borrower attempts to modify their loan by themselves, they are working froma position of weakness. The process begins by calling the lender and going through a time consuming automated system which culminates in talking to someone in "customer service". Little do they know that they are probably only speaking to a telemarketer, with limited knowledge of what can be accomplished. The telemarketer’s job is to get information from the borrower and encourage them to submit an application. It rarely gets to the loss mitigation department and unless the circumstances are dire, they are usually declined. It is often an exercise in futility that only feeds on the borrowers’ stress and frustration.
The best solution is to use a company that specializes in loan modification. They have the knowledge as well as the experience to deal with the lender, and bypass a lot of the extraneous personnel. These companies are specialists who dedicate their full attention to the borrowers' situation. This accomplishes two things;
1.] The negotiating process becomes more efficient with a higher probability of attaining a workable solution for the borrower.
2.] The burden and the stress has been removed from the borrower, thereby letting them focus on other pressing issues that often are seen during financial challenges.
There are an amazing number of negotiating tools that a loan modification professional may use, depending on the borrower's circumstances. The most commonly seen modification involves lowering the interest rate. Sometimes it is converted to a 30 year PITI. Forgiving defaulted payments, forgiving negative amortization balances, and extending the terms of the loan are all options available. Principal reductions can be considered, but not often accomplished. The most frequent type of modification is an interest rate reduction along with extended terms. This is good for the lender and the borrower as it gives the lender cash flow, while aiding the borrower to avoid short sale or foreclosure. The new Obama plan demonstrates a dramatic shift in policy regarding loan modifications. It is going to be a benefit both to the consumer as well as the lender.
Be sure to do your due diligence when choosing a company to represent you. Unfortunately, there are predators in the loan modification industry as well as any other industry. For more information on "Being Aware", see my previous post on "Mortgage Relief...Homeowner Beware".
How Does the Lender Win? What Does the Future Hold?
The economy has been affected negatively by the real estate and mortgage crisis, leaving many lenders considering loan modification as a viable alternative to assist in protecting their real estate investments. This process has become a "Win-Win" for both the borrower and the lender. Until recently, lenders have been cautiously protecting their investments...as a result they were not ready for the onslaught of problematic borrowers seeking assistance. Many lenders have been overwhelmed with phone calls and inquiries about loan modification but are unable to efficiently deal with the multitude of problems. They are frequently understaffed and resistant to invest money in new staff to handle the crisis. This demonstrates another area where it is advantageous to align yourself with a competent, licensed, consultant to act as your advocate.
With the way we have seen the housing crisis de-stabilize the rest of the economy it is obvious we will see many loan modifications over the next few years. Government officials are promoting new proposals to keep borrowers in their homes. President Obama's aggressive plan is going to make a significant impact, as it is necessary to take aggressive action to stop the tidal wave of foreclosures and stabilize the economy.
The economic crisis is going to require intelligent, aggressive measures over an extendedperiod of time, before we see any significant improvement. Being proactive with homeowners and lending institutions alike, keeping borrowers in their homes, preventing foreclosures and the loss of market value that follows, is a significant move in the right direction to promote economic stability.
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