Mortgage lenders now more inclined to lower principal

By
Services for Real Estate Pros

The home loan industry has been steadily resisting giving homeowners any principal reduction breaks throughout this real estate inferno.The government has been all over it to do mortgage modifications at a reasonable clip in an effort to keep the foreclosure epidemic from getting out of control. The banks have been slow in helping out even with them. The ones they have channeled through have generally been rather tame, all too often leading the borrower to redefault within months.  

Mortgage loan providers, banks and investors that is, have obviously decided to change course somewhat.In a fresh report from OCC, or the Office of the Comptroller of the Currency, a regulator of national banks, the numbers show that in the first quarter 3.1% of loan modifications included principal cutbacks. More importantly, in the second quarter it had jumped to 10%. The report offered little information on how much of a reduction was done on an average. Still, the implication is that more of the same should be coming.

The real estate market continues to struggle and mortgage foreclosures threaten to go on, or even grow, at an alarming pace.Banks must have realized that a meaningful rebound is still a distant dream, and even if it comes soon, it predictably will be a gradual one. Therefore, to cut their losses a principal reduction increasingly appears to be the thing to do. It doesn't have to be all the way down to current market. As long as it is large enough to keep the homeowner in his residence with an affordable mortgage payment, both sides are likely to end up winners.

Southern Nevada - Las Vegas, Henderson, Anthem, Summerlin, Green Valley, Southern Highlands and Mountains Edge among its communities - homeowners would be some of the major beneficiaries of this shift in thinking. Scores of them are underwater here and are straining to hang in there with high mortgage payments. Many have decided to walk away from it, just handing the keys back to the lender. This development, by the way, probably is also weighing in on the banks' decision making. Although there are no stats to back it up, it is easy to see that the hard-hit areas, like Arizona, California and Florida, Nevada's partners in crime, are getting more attention tied to this issue than others.

Many banks are now in a better financial position to loosen up their strategic thinking. The siege mentality seems to be lifting. Some have even been able to raise new capital to start tidying up their demolished balance sheets. This new direction, as long as it holds, will also assist in keeping Congress from enacting the cram-down legislation, rumored to be still alive and kicking.

Realistic thinking appears to be making a comeback to the mortgage marketplace.

 

  

 

Posted by

_______________________________________________________________________________

Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Joe and Molly Murphy 10/05/2009 12:39 AM
  2. Sabrina Linman 10/05/2009 02:52 AM
  3. Tim Ludemann 10/05/2009 07:02 AM
Topic:
Lending / Financial
Location:
Nevada Clark County Las Vegas Mountain's Edge
Groups:
RealtorsĀ®
Mortgages
Las Vegas, NV Area Real Estate Professionals
Everything California
The Optimist
Tags:
las vegas
henderson
home loan
nevada
anthem
homeowner
occ
summerlin
foreclosure
real estate
mortgage
southern highlands

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Ambassador
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Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTORĀ® - Oklahoma Investment Properties

Thanks for the heads up, Esko. I am a supporter of the idea of principle reduction. Some of the short sales I have been doing would be people still in their homes with less negative economic effect.

Oct 05, 2009 11:36 AM #52
Rainer
9,842
John Swaino
WJ Bradley Capital Mortgage - Scottsdale, AZ

We are seeing some lenders that will short refi.  HSBC is one that is really easy to work with.  Also,  Select Portfolio services which accepted 300k reduced ppayoff for a refi.  HSBC accepted 100k and 50k reduced payoffs and both loans closed last month.     These were borrowers that were not in delinquent status on their loans.  They qualified for FHA loans with low interest rates and the lenders were able to avoid the inevitable...A drawn out delinquency to foreclosure scenario that was about ready to take place because of arm loan resets.

Oct 05, 2009 11:48 AM #53
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Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239
Real Estate One - Commerce, MI
Michigan homes for sale ~ yesmyrealtor@gmail.com

Hopefully banks are getting smarter.  It's only taken them two years to learn a little back

Oct 05, 2009 02:58 PM #54
Rainer
60,196
Sal Antsipenka
Naples, FL

 There is no real democracy and not even the least bit of fairness in the present system. Does it matter if the bank lures you into more and more credit at good times and crushes you when something happens at bad time or the government does the same thing? Basically credit is very unhealthy to a lot of people in our country especially without education about its nature. So whoever was giving away money that did not belong to them to begin with ( and the money does not belong to the bank - it is your money they use) without any checking if you can repay the loan or not, should be punished with the same thing. Hence it's not unfair to do a loan mod, it is necessary to teach the banks a valuable lesson. They can be punished too!

Oct 05, 2009 03:31 PM #55
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Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

I think we're going to keep running into a fairness question with this, and then there will be the question of strategic default.  Will more people do it if principal reduction is the response?

 

At the same time, perhaps it will decreas the number of foreclosures.

Oct 05, 2009 04:27 PM #56
Rainmaker
325,771
Esko Kiuru
Bethesda, MD

Joe,

The less negative economic effect is a key component in principal cutbacks.

Oct 06, 2009 08:16 AM #57
Rainmaker
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Esko Kiuru
Bethesda, MD

John,

Some lenders are more progressive on this than others. Good for affected homeowners.

Oct 06, 2009 08:17 AM #58
Rainmaker
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Esko Kiuru
Bethesda, MD

Russ,

It looks like they were hoping for a market recovery so they don't need to do this.

Oct 06, 2009 08:19 AM #59
Rainmaker
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Esko Kiuru
Bethesda, MD

Sal,

Good points. They make the reader think.

Oct 06, 2009 08:21 AM #60
Rainmaker
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Esko Kiuru
Bethesda, MD

Christine,

Lot of things need to be considered to fix this mess as equitably as possible.

Oct 06, 2009 08:24 AM #61
Rainer
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Sarah Eubanks
Hill Valley Financial Services - Oregon City, OR
Preferred Oregon Loan Consultant & Notary Public

Congrats on the feature, Esko.  I would say that there is no easy or right answer at this point n the world of Real Estate...and reading the varying opinions is enlightening.  Thank you for the dialogue.  :-)

Oct 12, 2009 08:22 AM #62
Rainmaker
325,771
Esko Kiuru
Bethesda, MD

Sarah,

Thanx. This discussion was lively and broad. That's the purpose.

Oct 12, 2009 10:08 AM #63
Rainer
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Marylou Edwards
Diversified Mortgage Group - Pleasanton, CA
Specializing In Home Financing

This is really a very intersting article.  I can't believe some people get all the luck while others have to struggle so much espeically the people who have never been late in their mortgage!

Dec 15, 2009 06:09 AM #64
Rainmaker
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Esko Kiuru
Bethesda, MD

Marylou,

Thanks for coming by to comment.

Dec 15, 2009 09:08 AM #65
Rainer
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Marylou Edwards
Diversified Mortgage Group - Pleasanton, CA
Specializing In Home Financing

My question is, what about people who have already modified? Are they tied down to it?  What if they agreed to a loan mod even if they are upside down?  Don't they deserve a principal reduction too?  How does that work?

Dec 17, 2009 06:41 AM #66
Rainmaker
325,771
Esko Kiuru
Bethesda, MD

Marylou,

Every bank has their own rules and they may be willing to renegotiate. Or do a principal cutback.

Dec 17, 2009 09:30 AM #67
Rainer
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Brian Anderson
Peachtree SEO - Peachtree City, GA
SEO and Social Media Marketin

I feel the principal reduction is almost ridiculous.  It almost incents borrowers paying on time to strategically default!  Of course, the counter to this is when all of the borrowers who don't get mods default and basically tank the entire neighborhood/city. 

It's a no win situation. 

Jan 16, 2010 04:01 PM #68
Rainmaker
325,771
Esko Kiuru
Bethesda, MD

Brian,

There are no easy answers to the problem. This is one painful solution, though.

Jan 17, 2010 02:19 PM #69
Rainer
6,595
Bonnie Clark
Rock Solid Wealth Designs - Temecula, CA
Take Your Finances to New Heights

Esko, how many principal reductions are actually going through? 1 out of 10? 2 out of 10? New companies are popping up with promises like loan mods when they started. I am interested to hear the ACTUAL success rate.

Feb 08, 2010 03:08 AM #70
Rainmaker
325,771
Esko Kiuru
Bethesda, MD

Bonnie,

I haven't seen any actual numbers, but industry sources talk about it more and more, so it's gaining traction.

Feb 09, 2010 05:05 AM #71
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