Measures Archives – Refinance – Mortgage Refinancing Rates And Information

Loan Modifications With Principal Cuts Attract Lenders Attention

January 13th, 2010 No comments

Loan Modification consultants have being saying it for a long time; the best loan modifications are those that reduce the balance of the loan. This might seem obvious; of course borrowers are going to prefer loan modifications that reduce the amount they owe. What is not so obvious is that these types of loan modifications may be the best kind for lenders too.

Loan Modifications can use a variety of tools and measures to reduce the monthly payments of a mortgage. Reducing monthly payments is considered to be the main objective of a loan modification, as a way of giving troubled borrowers a break so they can continue to pay their mortgage. This can be done by:

1) Reducing the interest rate of the mortgage, either temporarily or permanently.

2) Extending the term of the loan, which means giving the borrower longer to pay the loan back.

3) Rolling interest payments to the end of the loan, this reduces monthly payments but creates a huge payment at the end of the loan.

4) Principal reductions of the loan balance. Here the bank or lender “forgives” or writes off a portion of the loan.

The Obama Administration does not control which measures lenders use on loan modifications and they certainly don’t require lenders to cut mortgage principals, what’s more, until recently principal reductions seemed unthinkable, a nice idea but not very practical. It must be said that forgiving debts is a nice thing for friends to do, but it doesn’t sound like a good way for lenders to do business.

However, recent reports are showing that principal reductions could be a key factor in creating cost efficient loan modifications for both lenders and borrowers. One of these reports was published by the Lender Processing Services June 2009 Mortgage Monitor and concluded that re-defaults on loan modifications with a principal reduction element fare much better than those based exclusively on interest rate reductions. The report states that “the success rate for loss mitigation-related loan modification hovers in the 30-40% range, with a higher success rate for loan modifications involving a reduction in unpaid balance.

The success rates of loan modifications with principal reductions is so much better than with other methods that lenders are beginning to listen to the data and increasing their principal reductions on mortgages of troubled borrowers.

You might still ask yourself why banks or lenders would be willing to cut unpaid loan balances instead of using other apparently cheaper measures. The key, we hinted at above, are foreclosures. Foreclosures are expensive for lenders, selling in a buyers’ market and the costs associated with selling a property are not cheap. Having said that any kind of loan modification carried out to avoid foreclosure is expensive for lenders whether they reduce interest rates, extend the term of the loan or reduce the principal balance, what makes it even worse is when borrowers re-default on their loans after the loan modification. Because foreclosure re-defaults are much lower on loan modifications with principal reductions, lenders are starting to think they might be cheaper in the long run, which is good news for the fortunate few that actually qualify for a loan modification.

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Loan Modifications Back To Basics

November 7th, 2009 No comments

Loan Modifications can seem complicated to many of us. Especially when we are dealing with the stress of losing our home and we are presented with a seemingly endless list of requirements and forms to cope with. It is easy when writing many articles on a specialized subject to assume that everyone knows what you are talking about, that everybody is familiar with what HAMP, TARP, a servicing company, short sales and foreclosures are.

If you are an expert in loan modifications what on earth are you doing reading an article titled Back To Basics, if not this article is for you. This article will explain the big picture loan modifications are currently set in and the basic terms you must be comfortable with.

Who is the owner of your mortgage? Knowing who owns your mortgage is vital. This is not as easy as it sounds. Often the bank or institution you bought your mortgage from is just a handler, a servicing company that sells mortgages and collects payments on behalf of an investor. We will not go into detail with how mortgages are bundled and sold but it is enough to say that it is probably more complicated than you expect so it pays to approach your lender or mortgage servicer with large amounts of patience and an open mind. It is also a good idea to become somewhat of an expert on the subject so you can at least ask the right questions and know when you are being taken for a ride.

The Programs.
Facing mixed feelings and responses from the public the American administration has started many programs and measures to modify loans and make them more affordable for troubled homeowners. There are two main programs, the HARP program (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program).

HARP is for homeowners that are current on their payments but have not been able to take advantage of the current lower interest rates because the value of their home has dropped and they are not able to refinance their mortgage. In order to qualify for HARP applicants must have mortgages owned or insured by Fannie Mae or Freddie Mac.

HAMP is by far the most widely used program. Any servicing company is eligible. The government provides incentives to investors and borrowers if a loan modification is successful. The purpose of HAMP is to bring mortgage payments down to 31% or less of a family’s monthly income. This program requires homeowners to have a job and be able to pay for a reasonable mortgage payment. The first step you must make with HAMP is to qualify for a three month trial loan modification. Once you have gone throught the three months without missing a payment you can qualify for a full loan modification.

HAMP reduces loan payments with three main methods: 1) Reducing interest, 2) Extending the mortgage term up to a maximum of 40 years and 3) Forbearance of principal and allowing for a ballon payment at the end of the mortgage.

Don’t pay for help, it is free!
It is importance not to fall for loan modification scammers no matter how much you hate paperwork. The best advice comes from the government and they have a vested interest in your success. You can call HUD for approved housing counseling at 239 434-2397 or visit www.hud.gov.

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Loan Modifications, 5 Things the Government Is Not Doing But Should

November 4th, 2009 No comments

Mortgage foreclosures are increasing steadily as home values plummet and layoffs are becoming ever more common while homeowners crumble under the weight of mortgages they can no longer afford.
The administration is working hard to increase the number of loan modifications to help out struggling homeowners. However higher unemployment rates are making it hard for homeowners to afford even good prime mortgages loan modifications struggle to improve. Also, foreclosures often prove to be a cheaper alternative for mortgage providers when the real cost of loan modifications is calculated.
So what can be done to fix this situation? Although far from total solutions I will put forward five possible measures. Some would be unpopular, others hard to implement but the truth is that easy fixes are just not there to be found.
1) Mandate Loan Modifications.
Up to now the government has tried to court mortgage providers into making loan modifications. Providing incentives and often footing the entire bill of loan modifications. This could be changed if the administration regulates foreclosures and makes it a legal requirement for banks to offer modifications before they can foreclose a loan or mortgage.
2) Provide Principal Reductions on Existing Loans.

Unless you actually reduce the principal (amount borrowed) of a loan you are not really helping, just lengthening the loan and making it harder regain equity on the home. Equity is the best incentive for homeowners to pay their mortgage payments. If you feel your home is worth more than you owe on it you see it as an investment worth protecting that you can sell at a profit if things get real bad.

3) Ease Accounting Rules for Loan Modifications.

Messy accounting procedures and bureaucracy’s red tape is responsible for much of the cost of loan modifications making them hard to enforce and expensive to make. Even the 500,000 plus loan trials the HAMP program has managed to make ahead of schedule will have to undergo further paperwork and potential bureaucracy pits once the three month trials are finished which will probably cause many of the loan trials to fall through.

4) More Transparent and Uniform Loan Modifications Reports.

Every bank or mortgage provider seems to have their own system to measure eligible borrowers and how they report their loan modifications. This makes it difficult to set uniform procedures, require targets and regulate the efficiency of loan providers.

5) Limit Fees For Borrowers.

Fees charged to borrowers are so high that even if a homeowner falls in difficult times for brief period he/she can fall into a spiral of debt due to the high fees and penalties he or she incurs. Also, loan modifications tend to include expensive fees for the homeowner just to apply for.

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Loan Modifications No Match For Rising US Foreclosures.

September 17th, 2009 No comments

Loan Modifications are the way forward in the opinion of the Obama Administration. A number of federal programs have been placed and are ready to welcome droves of homeowners that need to modify their loans.

However many question the wisdom of loan modifications and if they are the real solution to the increasing number of foreclosures and unemployment. Some have compared the goals and resources of the loan modification program with bailing out water from the Titanic with a cup. It is understood that the task is so great the administration and the measures in place to control the situation will be completely overwhelmed.

The truth is that the goals the loan modification program has set itself are titanic in themselves. The administration is aiming to save three to four million homeowners from losing their homes through foreclosure. If this occurs it will be an amazing feat for many reasons. Not least is the fact that banks and mortgage servicers are not geared to modify loans. Their business up to now has been to set up the loans and collect the payments. The millions of homeowners that now seek a loan modification is challenging the banks to reinvent their work system, sometimes to their own detriment.

In order to make this possible the government has provided generous incentives to homeowners and mortgage providers. The idea is to provide bonuses and incentives to servicers and homeowners when loan modifications are made and honoured by borrowers. The loan modifications must be sustainable and fair for the homeowners to qualify. Homeowners on their part must be regular on their payments in order to qualify for the bonuses and receive the loan modification.

The sad part is that even if the government is successful in delivering the three to four million loan modifications there will still be about 4.6 million people or families that will nevertheless lose their homes by next year. This would be bring the grand total of foreclosed homes to 9 million homes by 2011.

So what can the government and homeowners do to minimize the effect of this crisis and increase the number of saved homes.

Information seems to be, as always, a key player. Many homeowners seem to let loan modifications go because they don’t understand the documents they must sign. Clear language and skilled counsel are key if this program is to have even the most modest success.

Another issue is that homeowners do not make it throught the three month trial period into the final loan modification. Of those that do, many will become delinquent later on in the loan tenure, nullifying the benefits of the loan modification with all the expense it involved.

Mortgage servicers themselves can be an obstacle. Many servicers are continuing to take foreclosure steps with homeowners that are participating in the program, undergoing the three month trial. The government is trying to motivate servicers to help homeowners to achieve the loan modification wherever this is possible.

One factor that could make the whole matter moot is the rising level of unemployment. The loan modifications the government is proposing are not designed for people who can’t afford any substantial mortgage payment due to unemployment. It is designed for homeowners that are not able to take advantage of the current lower interest rates and whose homes have dropped in value and are struggling to pay their mortgage.
If unemployment rates continue to rise the number of homeowners that don’t qualify for loan modification aid will rise increasing the number of foreclosures.

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Loan Modifications No Match For Rising US Foreclosures.

September 15th, 2009 No comments