To understand what is going on with loan modifications behind the scenes it’s important to know the players. You already know that the government regulates, and pumps money into the mortgage market. Government backed loans are backed and purchased through Government Sponsored Enterprises.
These Government Sponsored Enterprises (GSE’s) were created by The United States Congress. One purpose of the GSE’s is promoting equal housing opportunities. The most well known GSE’s that were formed for this purpose are Fannie Mae, Freddie Mac, and Ginnie Mae.
All activities performed by these entities are done with heavy guidance from the government. This type of loan may be fairly easy to get modified as they are currently under extreme pressure to shore up their loans.
Private mortgages do not have the same level of intensity applied by the government, although any industry that ignores pressure applied by the government is ill advised to do so.
Private mortgages which are kept by the initial lender are called portfolio loans. This means that the original did not sell off the loan. These lenders keep their loans in their asset portfolio as an investment.
Lenders who portfolio their loans have total discretion over how, when and why they would modify a loan. My experience is that these lenders have the ability to be the most creative and flexible when it comes to loan modification.
Many of the private mortgages made as sub-prime loans were securitized and sold in big bundles as mortgage backed securities. The payments on these mortgages are collected by a company called the Servicer. The conditions under which a servicer is allowed to modify a loan are covered in pooling and servicing agreements or servicing agreements. These agreements normally employ standards which are generally accepted practice. Some of the standard provisions require the loan servicer to follow accepted servicing practices and procedures as it would employ “in its good faith business judgment” and which are “normal and usual in its general mortgage servicing activities”.
Common practice guidance for mortgage loan servicers usually comes from the American Securitization Forum. The American Securitization Forum (ASF) acts as an independent organization that funds itself. The ASF operates as a forum of the Securities Industry and Financial Markets Association (SIFMA). The ASF membership is made up of issuers, rating agencies, financial intermediaries, guarantors, law firms, and accounting firms.
Recent conditions in the mortgage market have necessitated guidance for loan modifications from the ASF. The ASF has issued guidance that dictates a case by case evaluation of loan modifications. They divide borrowers interested in loan modification into 3 different segments.
SEGMENT 1
Borrowers who are deemed to be “eligible to refinance into other products,” are in Segment 1, unfortunately these borrowers are out of luck. If you have a FICO over 660, and/or owe less than 97 percent of the value of your home and your payments are current you are in this group
SEGMENT 2
These borrowers are on the “fast track”. If your FICO is less than 660, and/or your LTV is higher than 97 percent you are in this group.
Fast track means that the servicer may modify your loan with minimal qualification work based on the following:
The borrower is deemed to be able to pay under the loan modification based on his or her current payment history prior to the reset date.
The borrower has expressed a willingness to pay under the loan modification, as evidenced by a signed loan modification agreement.
The borrower will be able to pay under the original loan terms.
The loan modification must maximize the present value of asset recoveries to the securitization trust and is in the best interests of investors.
SEGMENT 3
This is the bottom tier, not eligible for fast track, but still able to get a conventional loan modification. This is by far the largest group of borrowers in need of a loan modification. If your FICO is less than 660, and/or your LTV is lower than 97 percent you are in this group.
· The borrower has a fixed rate loan but has had a hardship causing them to be unable to maintain current payments.
· The loan is a sub-prime loan with a high interest rate unsustainable for the loan term
· The loan modification must maximize the present value of asset recoveries to the securitization trust and is in the best interests of investors.
There you have it!
If you read the last line in segment 2 and 3 you get the “lenders point of view”. NEVER FORGET when you are negotiating with your lender, they are not out for your best interest; they are only interested in getting as much out of you as possible.
All lenders are working to maximize the return on their investment – your mortgage. If you understand that then you are ready to begin negotiation a loan modification on your own.
Why Do Lenders Prefer A Loan Modification Over A Foreclosure?
Lenders are known to be difficult when it comes to loan modifications. But did you know that they benefit at least as much from the process as you do? The main reason they balk at mortgage modification is that they have to train agents to handle them, and each case requires individual attention. But it also saves them a good deal of time compared to foreclosure, and may even have a few long-term benefits. Here are some good reasons why your lender might prefer a loan modification over a foreclosure.
It’s faster and cheaper. In a foreclosure, there are specific wait times that allow the borrower to get current with their mortgage. It’s not uncommon for the process to drag on for almost a year. These delays can cost your lender a good deal of money. A loan modification, on the other hand, takes an average of 30 to 60 days. All they have to do is go over your documents, talk to your loan modification attorney, and see if you qualify. The negotiations are the hardest part, but they don’t cost quite as much as foreclosure expensesIt’s less work. To start the foreclosure process, your lender will have to assess late charges, file a Notice of Default, pay heavy lawyer fees, and arrange an auction to sell your home. And if you manage to get back on track and stop foreclosure, all the work simply gets filed away. Loan modifications involve less work on their part. You and your loan modification attorney will do most of the work and provide most of the documentation. Often, all they have to do is assess your case and decide what kind of mortgage assistance you will need.
It helps keep investors. Foreclosures are as damaging to your lender as they are to you. It may benefit them for now, but with the recent housing bubble, it will eventually weigh them down. Investors don’t want to deal with banks that have too many foreclosures on record. If they grant you a loan modification instead, your payments will keep showing up on their records instead of being written as bad debt.
Of course, this doesn’t make it any easier to get what you want from your lender. After all, you’re still a liabilityand it’s important to prove that you can get back on your feet. To get the best loan modification deal, you need a good Loan Modification Lawyer who knows the what lenders need and can convince them that it’s the wiser choice to settle a loan modification.
Modifications are not overly difficult
The mortgage loan modification process is not a overly difficult one. The fact is lenders are very motivated to work with you. For lenders, a loan modification is the preferred solution to help troubled homeowners.
There are 6 key elements that the lender will look for when considering a Mortgage Loan Modification:
The factors they will look at are:
1. Hardship
2. Ability to pay
3. Amount Owed
4. Equity in the property
5. Future financial situation
6. Does it make more sense to have the borrower sell the home via a short sale.
A loan workout or loan modification generally occurs where the parties to a problem loan mutually agree to workout the problem by creating new and better loan terms. The hope is that the new loan will enable to the borrower to meet their obligations. Often times homeowners don’t want to or simply can’t do the loan modification themselves. They prefer to hire a professional to work with the lender to modify their loans for them. Increasingly, millions of borrowers are turning to ‘Mortgage Loan Modification’ specialists to provide this service for them. Learn how to become a mortgage loan modification specialist now.
