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Loan Modifications

There has been a lot of talk about loan modifications as of late. This type of mortgage transaction has been gaining in popularity and basically involves requesting the lender restructure the mortgage with better terms for the homeowner. The assumption is that improved terms will help the homeowner make their payments on time so they can avoid foreclosure.

It sounds pretty good, right? Asking your lender to reduce your interest rate down to a 5% rate and change your loan from an ARM to a fixed rate. In some cases, individuals are even able to negotiate principal reduction. True, it is a hot market right now for loan mods, as they are called. However, it is important to note that a minority of requests are actually granted. It is solely the decision of the lender whether to approve such a request or not.

This situation is really reserved for borrowers who cannot refinance their mortgages to more beneficial terms (so as to reduce payments) and who are imminently facing foreclosure. It may seem counter-intuitive that borrowers with strong credit and good payment histories need not apply. But, this is a last resort for lenders who are swimming in a sea of foreclosures and near foreclosures right now.

Lenders each have what is called a Loss Mitigation department whose mandate is to lessen potential losses (i.e. foreclosures) for the company. Massive foreclosures devastate the lender's bottom line because of extraneous costs of a foreclosure. These costs include but are not limited to:

• legal fees for the foreclosure proceedings
• costs of repairing a property that may have been damaged by the owner or may have simply been in disrepair
• realtor commissions to sell the property
• And lastly, the sale of a foreclosed property usually nets about 75 cents on the dollar once it goes on the auction block

"Loss Mit" departments are faced with the unenviable task of determining who gets approved for a loan mod. Who will cost the lender the most money upon foreclosure - And, if the homeowner is really able or not to make their payment? They review information such as a financial statement, debt to income ratios, the value of property, and detailed explanation why the homeowner is missing payments. This is a crushing responsibility espcially now, during one of the most unprecedented market corrections in history.

Loss Mit departments receive thousands upon thousands of requests for such loan mods every week. They are understaffed overworked. So who gets the loan mod and who doesn't? A qualified Mortgage Broker who has experience with loan modifications can definitely help a homeowner's chances. The mortgage broker puts together all the paperwork for a loan mod request. They do a comprehensive financial analysis with the homeowner and render advice. If the homeowner is a good candidate, they submit the request and work to make sure their client get the attention they deserve from the lender. A Loan modification is not guaranteed, but a good mortgage broker knows what the lenders are looking for and will charge a reasonable fee.

For more information about loan modifications, fill out our online application. An Envision Lending Group loan consultant will contact you to go discuss your options.