Why Forbearance Works
Helping people stop a foreclosure on their home can save marriages, families and financial hardship. This process is often referred to as "loss mitigation." You are now in the business of helping people. You are becoming a "workout specialist." Specifically, you help people work out how to save their homes from foreclosure. You do this without the homeowners having to get a new mortgage on their property, sell their home, or declare bankruptcy. You are saving lives and families.
Loss mitigation and the whole concept of stopping foreclosure can go by many different names and can be referred to different departments at the bank that is foreclosure on the homeowners home. In addition to their collections department, most lenders have a loss mitigation department. They use names such as:
Asset Protection Division
They are all different names that mean the same thing - loss mitigation.
Your clients will be individuals who are behind on their mortgage payments and are in danger of being foreclosed upon. According to the American Mortgage Brokers Association, approximately 1.5% of all the mortgages in the United States are in default at any given time. Think about that number for a moment. This is regardless of the current economic market.
Thousands of people file for protection under bankruptcy laws every year (in 2002, there were over 1.5 million personal bankruptcies). Many of them were homeowners who were in danger of losing their homes. They simply are not aware that there are non-bankruptcy alternatives. For most people, their home is their single biggest, most precious asset. Often, the only options that present themselves to beleaguered homeowners are investors attempting to take their home or attorneys advising them to file bankruptcy. With the new bankruptcy law, which became effective on October 17, 2005, this option is more difficult, though it still applies. The most important aspect of the bankruptcy code is the "automatic stay" provision, which provides homeowners the ability to "stop" or "stay" a foreclosure by simply filing for bankruptcy. It also puts an immediate stop to all contact and collection activities from the lender or mortgagee (and other creditors). The new bankruptcy law requires that a debtor receive credit counseling from an approved non-profit credit counseling agency prior to filing Chapter 7 or Chapter 13 bankruptcy.
A Loss Mitigation Professional, or LMP (you) has the ability to save a homeowner's home, their credit, dignity, equity, family, and the embarrassment of filing for bankruptcy.
History has shown that the most common reason for foreclosure is divorce. When a couple gets divorced, they are both still obligated to pay the mortgage, but oftentimes neither wants to be responsible for the payments. Both parties dig in their heels, expecting or demanding that the other party pay the bill. When neither party pays, the mortgage goes into default. If the mortgage remains unpaid, the creditor will eventually foreclose. In this scenario, both the husband and the wife lose not only their house but also any equity they may have in the property.
Lenders do not like to foreclose, because they do not want the property. The property must be sold, and it could take several months or years to sell it. Market conditions for home sales often change from month-to-month and year-to-year. In an economic downturn, property moves very slowly, even when offered at below market value or forced sale prices.
Rather than taking the home back, t he lender would prefer to have the homeowners continue to live in the property and make some form of payment. Money is a product, and lenders lend money for a profit (the gross profit to a lender is the interest on the loan amount). In the first years of a loan, the majority of the payment is applied toward interest only. Very little is applied to pay down the principal. After several years of making mortgage payments, a small portion of each payment is then applied to pay down the principal loan balance. It is in the lender's interest to keep receiving those payments, since it generates a good cash flow, which allows the lender to make more loans, earning still more interest.
The above statements might lead you to believe that since the lender(s) make their profit in the first few years, they would be eager to foreclose because they could then sell the property, repeating the process endlessly. It may seem that this would be the case; however, lenders generally do not make money on REOs. Often they do not even recover the balance due when they end up with an REO. Most homeowners will not even bother to notify the mortgage holder (lender) when they first discover they will not be able to meet their payments. Once they get two months behind, the homeowners avoid the lender and do not respond to the lender's calls or letters. The result is that the homeowners, in most cases, find themselves in foreclosure when they have fallen three months behind.
Your services are needed in assisting these individuals.
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