Principle Archives – Refinance – Mortgage Refinancing Rates And Information

Loan Modifications, Alternative Solutions to the Foreclosure Problem

February 27th, 2010 No comments

Recent projections estimate that by June, over 5 million homeowners will be heavily underwater. Let us define that a little more precisely. You are heavily underwater if the current market value of your home is only 75% of the balance on your mortgage. Between you and me, this means you are pretty screwed. The scary part is that if this projection proves true 10% of all US homeowners will be in this pickle; not the place you want an economy to be if you are trying to dig yourself out of a recession.

This is why the Obama Administration is running about like headless chickens trying to find solutions to this problem, quick, mid-term, and long term solutions; any kind of solution that will get us out of this.

It was this kind of panic that caused the government to put all their weight behind HAMP, the government’s loan modification program. Loan modifications were and always have been procedures designed to help homeowners stuck with sub-premium loans. Sub-premium loans as you all know is a kind way of talking of usury, loans with interest rates so high they give you vertigo if just to think about them. However loan modifications are not, and never have been a fix for homeowners with great loans that are unemployed and cannot afford their mortgage.

What alternative solutions are there?

One proposal is to buy time by simply banning foreclosures until other options have been looked into by the homeowner and lender. You have to love that proposal, if you cannot stop homes foreclosing by economics just make it illegal. As crazy as this measure seems it is designed to buy time and allow homeowners to find ways of keeping their home. This would take the current guideline of asking lenders to evaluate defaulting homeowners for a loan modification to the next level by making it compulsory.

The Mortgage Bankers Association says its members are already following this principle, and that foreclosure is always a last resort when all other options have been exhausted.

Another plan sponsored by the Mortgage Bankers Association is to not modify permanently the loans of troubled homeowners that have lost their jobs but simply to reduce their mortgage payments substantially for up to nine months to give homeowners a chance of looking for a new job.

As you probably guessed the Banker’s Association is requesting Treasury to pay for the program. Nevertheless, it does seem like a good idea to provide a homeowners with a break until he finds a new job than taking forever to marginally reduce the mortgage payments of an unemployed borrower.

However, many are analysts are saying that the real strategy to follow is to find a way to improve the economy. A strong job market would pull out the housing market from the fix it is in. On this theme, there were some good news last week. The number of homeowners starting to default unexpectedly dropped in the fourth quarter of 2009. However, the government also reported that home prices dropped by 1.6% in December; making it clear that the economy still has a long way to go before it gets a clean bill of health.

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How Do Banks Profit From Mortgage Modifications

July 20th, 2009 No comments

How Do Banks Profit From Mortgage Modifications

The beauty of capitalism is that there is some degree of transparency, we expect everyone to do everything for some kind of profit or benefit. As it is often said there is no such thing as a free lunch, the world of mortgages and loans is no exception. Taking aside a couple of laudable nonprofit loan organizations, banks and lenders lend for profit, understanding how and where they make a profit can help you understand how you can save money and get a better deal on your loan modification or mortgage refinance.

Profits for banks can come from all kinds of avenues when clients modify their mortgage or loan. This article will point out some of the basic you must keep an eye for.

Mortgage modification fees

Banks and lenders make money by moving money and papers. If you modify an option, clause or interest rate on your mortgage it is very likely this will cause you to incur in some kind of fee. This is bad and good news. If a bank is going to make money on your loan modification you don’t have to feel like it is charity, modifying your loan can be a positive thing for both of you, it also entitles you to demand a certain level of customer care.
It is important to note that banks should only include fees in a loan modification that belong to the current loan modification for reports or actions carried for the borrower, previous costs and fees should not be included in the modification.

Extending the length of the tenure.

Making a loan last for a longer time is good news for your bank and can be good news for you, mind you it can be terrible news also. It is good news for the bank because they guarantee they are going to a return on their investment for a longer period for the same amount of cash. This is an important point to think about. Some borrowers extend their loans without even thinking twice, not realizing how expensive it can be in extra interest.

Increasing the principle borrowed.

Just as the car salesperson tries to sell you all the extras he can a good mortgage salesperson might try to get you to increase the amount borrowed as part of your loan modification. As you probably guessed, borrowing more money will cost you more. This is fine if you can afford it or you need it very desperately, nevertheless it is worth thinking twice before digging yourself deeper into debt.
As you can see banks can actually make a profit from a modification of your mortgage making mortg

age modifications a potential win-win situation if everybody does their part. Your part is to be informed, understand your options and keep your eyes on the game.

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