In August, FDIC officials began to deal with the 60,000 mortgages passed due that were held by Indymac. And in September, FDIC officials began to deal with “toxic” loans held by Washington Mutual. And this week Bank of America announced they would begin modifying bad mortgages for nearly 400,000 Countrywide customers
The lenders are all launching loan modification programs, offering new terms and lower rates to more than 500,000 delinquent borrowers.
But there is more to this story than there appears.
The most important thing for homeowners to be aware of is that when the lender contacts a homeowner directly they may not be offering the best possible loan modification results that they are entitled to.
The reason that the lenders will begin to contact delinquent homeowners directly is to try to clean up the “toxic” mortgages that they hold but also to limit the lenders losses.
When a homeowner signs a loan modification proposal, they often times are signing away future loan modification options and often times they are signing away the option to sue the lender.
By contacting the homeowner directly before the homeowner has had the chance to seek professional assistance (the lender limits potential future losses).
Amid intensifying political pressure that lenders are not doing enough to prevent foreclosure, a growing number of mortgage services are easing interest rates — six times more often than just a year ago, according to Credit Suisse.
The $700 billion federal rescue plan encourages banks to adopt plans like IndyMac’s, Washington Mutual’s and now Countrywide’s, offering new terms for loan payments on those facing foreclosure.
But this is also very good news for homeowners that are interested in a loan modification yet have not been late on their mortgage.
To be clear the banks will only begin reaching out to homeowners that are very close to foreclosure.
But the change in attitude and policy by the banks is great news for all homeowners that would seek a loan modification, especially when they have professional negotiators presenting their case.
For those banks and lenders, the loss incurred on the interest they’re collecting is, for now, less costly than the effort it might take to sell a foreclosed home at a reduced price.
“In some cases, the length of the loan will increase, it depends on the circumstance,” said John Bovenzi, CEO at Indymac. “This idea is to make the loan more affordable for the borrower so they can sustain payments and stay in their home.”
The rate of foreclosures doubled from June of last year, according to RealtyTrac, an online market of foreclosure prosperities. The increase in foreclosure signals the growing number of homeowners who are struggling to make payments on their homes. It is also making it very difficult for homeowners that have not been late on their mortgages to qualify for a refinance (due to plummeting home values in their area).
Those who have been making payments on their mortgages — if only barely — will not get a break on their interest rates directly from their lenders.
It may seem unfair to reward those who failed to make payments, while leaving those who are paying out in the cold, but Bovenzi defended Indymac’s program.
“If you live in a house and foreclosure signs are going up around you, it is hurting your property value,” Bovenzi said.
On Monday, Bank of America agreed to reduce interest rates on up to 400,000 mortgages nationwide.
Once again, the banks are only reaching out to homeowners that are very close to foreclosure.
However, any homeowner can qualify for loss mitigation and loan modification as long as they present a lender or servicing company with a strong enough case that it makes more financial sense to modify the mortgage than to let it run its current course.While there is no clear-cut solution to solving the mortgage crisis, the loan modifications offered by IndyMac and others have been a step in the right direction to make loans affordable and more manageable for borrowers.
It is clear now that loan modification (for those that present a solid case) is a much more attractive option for lenders than the alternative.
This is great news, but on the other hand for homeowners that have been considering loan modification may find themselves in a very long line and it would appear that there is no time to waste.
Since Monday’s announcement, Bank of America will have more than 5,000 employees assigned to re-work mortgage loans.
Many homeowners will begin to get letters from Countrywide addressing their mortgage and their options.
A copy of what the letters will look like is attached below.
The most important thing for homeowners to be aware of is when a lender contacts a homeowner directly they will not be offering the best possible results or outcome.
The reason that the lenders are contacting homeowners directly is to try to clean up the “toxic” mortgages but also to limit their losses.
When a homeowner signs a loan modification proposal, they often times are signing away future loan modification options and often times they are signing away the option to sue the lender.
By contacting the homeowner directly before they have the chance to seek professional assistance (the lender limits the potential losses).
For example it is better for the lender to add past due payments on to the back of the loan than to be forced by professional negotiators to “forgive” late payments or “reduce” principle balance.
Notice in the example Countrywide Letter below where it talks about Countrywide’s idea of a Loan Modification.
The way they define Loan Modification is (adding past due payments to loan balance).
This is not what a Loan Modification is or should be.
This is another example of why we need to work with professional assistance to guarantee the best possible results.
See below:
It is an excellent sign that lenders will begin contacting delinquent homeowners directly to discuss modifying their loans.
And this is also good news for anyone that is interested in modifying the terms of their current mortgage.
The main point here is that while lenders will begin contacting some homeowners directly, in order to obtain the best possible results, homeowners (regardless of whether or not they are late on their mortgage or not) absolutely need professional assistance to help negotiate the best possible terms for a loan modification.
The lenders are more interested in protecting their assets than they are with the individual needs of their clients.
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