As I delve deeper and deeper into the world of Loan Modifications I'm uncovering answers to many commonly asked questions here on Active Rain.
I've written and read many blog posts that express confusion over the inconsistent manner in which loan modifications and short sales get approved. What is simple common sense to you and I takes on a whole new light once we get behind the scenes of loan servicing.
Common questions include:
- Why don't banks just modify loans across the board?
- Why does it take so long to get answers?
- Why does one homeowner get an easy loan modification while the neighbor with the same lender takes months?
The answers lie in the contractual agreement between the loan servicer and the investor. Most contracts between loan servicers and investors require that the loan servicer continue o pay the investor - EVEN IF THE LOAN IS NOT PERFORMING. This explains the inconsistencies. It also validates the contention that loan servicers are afraid of being sued by investors. Since the investor is getting paid for a non-performing note, there is no incentive for the them to modify or accept terms in a short sale. They are getting their cash flow..too bad for the loan servicer or the homeowner.
This alone explains why some loan modifications are easy and some are impossible.
As an Example. Let's assume we have two identical homeowners. The loan amounts are the same, income is the same, house value is the same. Both Homeowners make their payments to same bank/loan servicer. The only difference is the who owns the note.
Homeowner 1: The bank owns the note
Homeowner 2: The note was sold to a group of investors.
Bottom Line, Homeowner 1 is likely to get a loan modification or Short Sale approval faster and easier than Homeowner 2. It's even possible that Homeowner 2 will lose the home to foreclosure because the Investor won't negotiate.
This suggests that the first question that needs to be answered when taking on a Loan Modification or Short Sale is - Who Owns the Note? Lenders won't tell you the names of the investor, so a more round about approach is needed. Questions like is my note owned by the bank or an investor. Is the note held by Fannie Mae or Freddie Mac?
Getting those answers will give you and your clients a better idea of what to expect moving forward.
Kate Bourland: I am committed to helping my clients find solutions to their financial challenges. Call me if you are at risk of losing your home to foreclosure and need a loan modification. I can help.
Too much credit card debt - let's find a solution that works for you. Wanna pay off your home fast- call for a free analysis. Ask me how I can help you manage your debt... it's easier than you think. You can reach me at 530-419-3967.
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