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Loan Modification: Why The Bank Won't Work With You

Oct. 27, 2009

man question

Inevitably, my clients that are behind on their mortgage payments and possibly facing foreclosure ask me, “What about a loan modification?”  Here’s my answer:

Modifications are intended primarily for owner occupants.  Also, attempting a loan modification does not stop the foreclosure process. By the time the property owner finds out the bank won’t cooperate on a modification, it could be too late to do anything else and the bank could foreclose.  Unfortunately, due to circumstances beyond their control, many of them paid the highest possible price, with the highest possible financing, at the highest peak of the market.  So, even if a loan modification is successful, the homeowner is still upside down, owing significantly more than the property is worth.  One has to be willing to hang on to the property for 20 years or more.  That’s how long properties in Tampa Bay will have a negative value and, for investors, generate negative cash flow.

j0433180Sometimes I meet with homeowners that have already attempted a loan modification with the bank.  These folks share the same bewildered expression when they ask, "Why won't my bank work with me?"  It seems that mortgage companies do everything they can to avoid modifications. Perhaps this, taken from an August 6th article in the St Pete Times, explains why:

 “Without government aid, servicers don’t have enough financial incentive to modify mortgages. Each year, they earn about one-quarter to one-half percent of the value of the loans they service, so the larger the mortgage, the more they can make. They earn less if the loan is modified, usually by lowering the interest rate or principal or adjusting the term.

The servicers also make money through late fees, or by foreclosing. The paperwork necessary to execute a House 4foreclosure can generate hundreds of dollars in fees for some servicers.”

More about loan modification from the Tribune:

“Housing advocates say homeowners still face “reluctant lenders,” said Irwin Trauss, an attorney who represents low-income homeowners for Philadelphia Legal Assistance. He recently testified at a hearing of the Congressional Oversight Panel, the watchdog that monitors the Treasury’s Troubled Asset Relief Program, better known as TARP, or the bank bailout bill.

Trauss said that Bank of America, at least through July, told homeowners that they couldn’t participate in the program when they should’ve been allowed to do so, and he alleges that Saxon Mortgage forced one of his clients into bankruptcy without providing a valid reason for turning down her modification request. Trauss’ comments were echoed by other housing advocates, who’ve found mortgage servicers slow to respond and confused about modification rules.

Servicers look for reasons to avoid making the modifications when they are most needed, rather than for opportunities to make them,' Trauss said.

 Banks are like everyone else – they work their pay plans, and mortgage modifications apparently don’t pay them enough.  A modification is unlikely, so be sure you don’t fall prey to a “stop foreclosure” company that wants money up front for “helping” you with the modification.   

However, a loan modification can be pursued simultaneously with a Short Sale.  If the loan modification is successful, the listing (even with an offer on the table) can be withdrawn, without penalty.  Listing a property, short sale or not, doesn’t mean the sale has to close.

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RE: Loan Modification: Why The Bank Won't Work With You

Posted by Anonymous Dec. 8, 2009

Due to the over inflation of home values in the past decade, approximately 40% of homeowners in Florida are upside-down on their current mortgages. We offer a time-tested and cost-effective solution to modify your current principal mortgage balance below the current property value, which involves the purchase of your current mortgage note at a discount. As your new lender, this allows us to reissue you a new loan for 95% of the current market value (30 yr. fixed term @ prime + 3%), thereby providing you with 5% instant equity! There is no up-front cost to enroll in our program.

How It Works

Phase One: A forensic audit is done on your current loan agreements

Phase Two: Your debt and income statements are reviewed

Phase Three: Negotiations begin with your lender(s)

Phase Four: Your mortgage note(s) are purchased

Phase Five: A new note is created and amortized over 30 years at an interest rate of prime + 3%

Phase Six: Your principle mortgage balance is reduced, which lowers your payments and allows you to keep your home. Enrollment in our program does not jeopardize the ownership of your property.

To enroll in the Principal Reduction Program visit http://principlereduction.net/clp-form.html.

Feel free to contact me at the number below if you have any questions regarding our services.

Warmest Regards,
Todd Mautner
Infinity Financial Services
19239 North Dale Mabry Hwy.
Suite #114
Lutz, FL 33548
Direct: 813.322.4242
Fax: 813.936.4775

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RE: Loan Modification: Why The Bank Won't Work With You

Posted by william and patricia delgado Feb. 4, 2010

   When reading the article and hearing the news about loan modification we know what the needs are from people like our selves. I my self lost my job in 2008 working for National Gypsum total years of 23, and my wife who worked in the banking industry going through many bank mergers worked a total of 27 years had to take a early retirment due to ill mom in New York. in 2005. Not knowing my own job was going to close down. Our mortage is behind yet but we did talk to the bank citifinancial for some time now and it seems we can get a direct answer. They have gonme through three different manager at the branch we deal with in years time. There are no jobs out there and my wife who has been through so much stress is trying to find part time employment plus take early retirement and try to disbialty . Her mom passed away Oct 5, 2009, after a long  battle with altizmer's plus other medical problems. How do the hard working people of this country find a way. If you are rich they get help and if you are poor. No one was to be unemployed.

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RE: Loan Modification: Why The Bank Won't Work With You

Posted by chris dix Nov. 24, 2010

It's simple, the mortgage servicer has calculated Net Present Value and decided foreclosure is better for them, for whatever reason(s)

The solution to ensuring a good faith mortgage negotiation is proving to be the REST Report. The Rest Report calculates an unbiased Net Present Value using bank software. The lender can't dispute the calculations. The REST Report has been sanctioned by every single judge who has ruled on it. The
software always recommends modification or short sale since those solutions benefit the mortgage investor and homeowner the most.
Click for Information on the <a
href="http://mortgage-monster.com/do-it-yourself-mortgage-modification">Do it Yourself Mortgage Modification</a>

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RE: Loan Modification: Why The Bank Won't Work With You

Posted by Rich Feb. 8, 2011

This is a great article and it is true that working with the banks to get a loan modification approved is extremely tedious and time consuming.  Most banks won't even talk with the owner.  I would always suggest trying a loan mod before going into foreclosure. We have helped thousands of FL residents with their loan modifications and when some don't get approved, there are always options such as short sales, etc. 

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RE: Loan Modification: Why The Bank Won't Work With You

Posted by Mike Sep. 29, 2012 Hey there, You have done a fantastic job. I'll definitely digg it and personally suggest to my friends. I am confident they'll be benefited from this website.
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