Key West Homeowners and Loan Modifications

One of the ways banks are trying to help those who have been hit hard by the economy is to modify their mortgage loans. Most financial institutions are offering to lower interest rates or accept interest only payments as a way to help people stay in their homes. But a recent federal study actually shows the best way to help endangered homeowners is to reduce the principal balance of the loan. Many banks are hard pressed to do this, but studies show that this is the best way to keep a homeowner from re-defaulting.

The findings of the study show that servicers who lower the monthly mortgage payments by reducing the principal balance are much more likely to see payments continuing than the servicer who makes interest rate adjustments. The basis behind this may lie in the fact that homeowners feel much more comfortable trying to stay in a home when the loan matches more closely to the value of the property.

Homeowners who have a loan-to-value ratio higher than 115% are 51% more likely to re-default AFTER an interest rate modification. But if the principal balance is lowered instead of the interest rate, the homeowner is much more likely to keep up with the payments. While some lenders do not want to reduce the principal and take a loss, the study shows that when the interest modified loan goes into default again, they get much less through foreclosure than they would if they had reduced the principal balance.

One of the worse side effects of the foreclosure problem is home that sits empty. Vacant homes are often vandalized and destroyed as thieves rip through the floors to check for copper plumbing or tear fixtures completely out of the walls. Keeping a homeowner in the home is the best solution for everyone! It is in the best interest of the lenders to do what they can to accomplish that.

If loan modification is not an option, that brings up the subject of short sales. Short sales can be a saving grace for the lender, the seller and they buyer! We will cover that more in depth in future posts! If you are looking for short sales or just a piece of island living, call Margarita Villoch! Your complete Key West real estate resource!