The times are definitely changing for mortgage lenders and investors as they realize that they have a very real potential for a flood of REO properties to deal with. In order to prevent the foreclosure and pending inventory of REO properties, the industry is starting to grasp and focus more on loss mitigation techniques to creatively avoid the whole foreclosure mess.
The Center for Responsible Lending recently released a study predicting that 2.2 million American households are going to lose their homes. This study predicts that over 20% of all subprime loans originated in the 2005 -2006 period will fail amassing up to $164 Billion in foreclosures - just in the subprime market.
It has been reported over and over again that subprime borrowers received risky loans or ARM products and that many of the borrowers just do not understand the implications of their loans. Many sources will agree that 80% of all the subprime loans issued in this period were issued under risky conditions.As the ARMs reset, homeowners just won't be able to make their higher payments. I think when history looks back, this will be known as the decade of loss mitigation. Right now people are doing whatever they can to avoid foreclosure, utilizing many creative means.
There has recently been news that homeowners are not even keeping current with their home loans in the first 3 to 6 months. This is a bad sign that is costing the market and the overall economy a lot of money.
Perhaps the biggest cause for this slide is that mortgage brokers are more often than not selling loan products to borrowers that are beyond their means. There is also much fraud on this side of the industry - most of the time it is on a very small scale and then there are those who just want to drive a Mac Truck through the loopholes to take advantage of every single opportunity, to their fullest capability.
A popular product that has gotten more homeowners in trouble, than any other is the No Doc - Stated Income. Mortgage brokers thought this was their license to lie - however every document they fudged is an act of fraud - a fraud that lined their pockets and is now having a ripple effect through our national economy.
Certainly the mortgage lenders have to take their share of responsibility for making such an easy loan to get available to so many with bad to poor credit histories.
Hello, what were they thinking? Better yet, were they thinking?
Today, mortgage servicers are looking to technology to help manage the analysis of the foreclosure process. The key to a successful loss mitigation department is to work directly with the homeowner early on in the process. They need to profile the borrower, the home, the local market and score the loan accordingly.
Month to month fluctuations in the market make it necessary for the lenders to stay on top of the slow pay loans, as much of their success will depend on market knowledge. They have to use the available technology to help them keep track and understand the weight each property inspection carries and how valuations can change with the changes with the statistical data of the local marketplace for the very specific neighborhood as well as the overall region.
Mortgage loan servicers need to know the cost of foreclosure and what they stand to lose if the property goes REO. Today, with the help of technology, service providers can eliminate many foreclosures by either accepting a deed-in-lieu, approving a short sale or other loss mitigation methods that are available.
In order for a lender to really grasp what they stand to lose if a property is foreclosed on the lender must weigh and score the borrower's past delinquency history, analyze their credit history, understand the quirks of the geographical location of the subject property as well as understanding the local laws where the property is located - after all they need to know if they are working in a judicial or non-judicial foreclosure state. (California is a non-judicial foreclosure state.)
It seems as if the emphasizes that lenders have traditionally had is the volume of loans they can generate. This attitude has to do a reversal. It does no one any good if a loan made today cannot be kept current for the next three months. Lending should not be a game of volume but a game of quality. Non-performing loans are a drain on resources - both to the lender, the borrower and the national economy.
I recognize that loss mitigation is an incredible tool for the homeowner in trouble who wants to and can afford to keep their home. Unfortunately, it doesn't always work for everyone - but those it can help think of it as a God send. In an effort to best service my real estate market in California. I have recently aligned myself with a well respected national company that I believe in - Freedom Foreclosure Prevention Services (FFPS).
Freedom Foreclosure Prevention Services may be able to help if it is your desire to stay in your home. They guarantee their services and never charge a dime until they know what they should be able to do.