Heath's Blog


Is this a Foreclosure Solution?

So, here is an idea for mortgage companies. 
Instead of foreclosing on a property, what if you rewrite the loan in the following way:
1) keep the principle amount the same.
2) lower the rate to today's lower rate.
3) and ammortize for 40 years.

1)A) principle of the note stays the same for the future payoff.
1)B) Keeping the principle the same means that the borrower needs to stay in the property until the market re-appreciates to the value of the principle to avoid selling at a loss. 
This means more people will stay put, and at the same time, be able to pay for their house.
2) and 3) will make the payments easier to afford.

More Why?
Most loans are paid off by sale or refinance within the first 7 years of the loan. 
By making the payments affordable, but keeping the principle amount as is, the loans will perform longer and mitigate much of the loss.

Good for the owner (of course):
$100,000 @ 10% = $877/month on a 30 year ammort. 
$100,000 @ 6% = $550/month on a 40 year ammort.
This allows a reduction of $327/month in payments.

Better than foreclosure for the Investor:
The future values are dramatically lower for the "new" loan, but ONLY if they go to final payment. 
In reality, they will both be paid off by the seventh year based on average ownership statistics.
That would mean a "loss" of  about $45,000* on paper versus an actual loss in the event of an actual foreclosure.

*(the 7 year FV of the 10% note - FV 6% note = $194,871.71-$150,363.03 = +-$45,000)

A foreclosure loss will include:
- 12-24 months of no payment ($877 x 24 = -$21,000)
- legal fees (-$4000)
- broker fees (up to -$6000)
- loss of value of this property and other properties in the neighborhood (-$15,000 min)
- REO staff increases (-$10,000)
$21 + 4 + 6 + 15 + 10 = more than $56,000 in actual loss over 2 years

By re-writing the note, the Investor reduces their loss:
The "new note" performs over the next 84 months instead of costing actual money over the next 24 months.
84 x $550 = $46,200 that the note returns over the next 24 months as it performs versus $0 durring 24 month foreclosure.
$46,200 - 45,000 = $1,200 positive  OR  Straight $56,000 loss over the next 2 years. 

Other useful benefits incude:
Property values do not decline as dramatically as when many foreclosures take over a market.
The loss numbers get much larger much faster when the face loan value increases.


Heath Coker, Associate Broker
Robert Paul Properties
www.CapeGroup.com / capegroup@capegroup.com
508-274-5613  Licensed in MA
Its a beautiful day on Cape Cod!
@CapeGroup  Skype: heath.coker

REindex.com, The Site Engine®
508-274-5613  reindex@reindex.com
See our 2 Minute YouTube www.REindex.com/WhatIsREindex.html

James Heath Coker | Create Your Badge

Is this a Foreclosure Solution?
So, here is an idea for mortgage companies. Instead of foreclosing on a property what if you rewrite the loan in the following way: 1) keep the principle amount the same. 2) lower the rate to today's lower rate. 3) and ammortize for 40 years. Why… more
Finally A Good News Real Estate Article!!
Wow! Finally an article talking about real estate in a positive way! Opportunity abounds for some people. An article in the Boston Globe talks about keeping the real estate opportunities on Cape Cod quiet. The author is trying to find a house… more
Zil low Target Practice / Listings or Programmers?
One of the most technical web techs from Zi llow was drafted into the military. While at boot camp he went to the rifle range where he was given some instructions, handed a rifle, and a couple rounds of ammo. He loaded the rifle and fired… more
5 Monkeys - Why Real Estate Agents Are Willing To Give Their Listings…
5 Monkeys - Why Real Estate Agents Are Willing To Give Their Listings Away. " Here is an explanation of the why agents aren't more concerned with giving their listings away: Five monkeys were put in an enclosure with a… more
I just got my TradeMark Approved! REIndex. com, The Site Engine(sm)
REindex. com, The Site Engine (sm) has been approved as my Trademark/Servicemark for my website! I have been quietly building this web portal for 8 years to help any listing agent get found by directly linking to their site whether they request it… more
Why don't other MLSs follow the actions of the NWMLS?
I have been talking to agents and brokers all over the country over the last few months and I am amazed that no one knows about the NWMLS's decision to stop feeding their listings to sites like Rltr dot com. It may be that everyone is so… more
Real Estate agents add "Instant Value Buttons" to their…
Why real estate agents are adding things like "value estimating buttons" to their web pages. For a short time, some of the large "display" and "lead generation" real estate sites have tried to reduce valuing a home to a… more