Each and every day, we here another story, an effected co-worker, your child's classmate, an old friend, and on and on...
With the number of foreclosures on the rise and a weakening real estate market pinning homeowners into homes they can't afford and can't sell, it's time to introduce a new way to prevent foreclosures. This tool, referred to as a loan modification, creates opportunity for lenders to modify a previous mortgage contract they hold with a borrower, and has the potential to seriously aide in the ending of the current mortgage crisis. Many borrowers are seeing their current mortgage interest rates dropping sometimes in half, thus making their new payments much more affordable. This is all done without actually refinancing the home.
People successfully obtaining a loan modification must be on the verge of being foreclosed upon and be able to show a hardship. The borrower must qualify for the program, and will likely be burdened to show that this modification will be in the bank's favor, as well as the borrower's. Furthermore, borrowers seeking a loan modification must be employed, must be able to prove their income, and will have to show exactly where a change in their circumstance created an inability to repay the debt they previously agreed upon.
Lenders are not blind to the fact that this process may potentially turn what would have been bad debt into a good loan which the bank will then profit from. And if the borrower eventually chooses to refinance or sell, the bank still comes out smelling like a rose because late charges, fees, outstanding payments, and other concessions must be part of the modification agreement. This helps make sure the bank does not lose out by temporarily absorbing outstanding funds.
Bad debt will never reflect well upon a banks appeal to their investors nor the FDIC, and pending foreclosures are viewed as bad debt. The opportunity to turn a potential foreclosure into a profitable investment opportunity will certainly pique the bank's interest to at least try a loan modification. In addition, banks prefer foregoing foreclosure duwe to the simple fact that a property in the midst of a foreclosure can sustain heavy losses during the process,
Vacant homes are often victims of vandalism, so banks make the effort to get them sold before they are forced to auction. However, regardless of how hard they try, properties simply aren't selling like they used to. Damages a property sustains take away from the overall funds that a bank would claim in a foreclosure, Now, add in all the other costs involved in the foreclosure process (attorney fees, late fees, agent fees, carrying costs, etc.), And you can see how it becomes clear that banks would rather practice loan modification than the see a home through the foreclosure process.
In Wisconsin we have not had the direct impact as have many in other parts of the country, however I am now getting calls each and every week from distressed individuals looking for advice.
Please stay tuned for PART 2 - I will be discussing "Why The Banks Will Lower Your Rate Without Refinancing....
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