Heath's Blog


Is It The Property? The Value? Or the Payment? That owners are distressed over.

Here's a question: Why aren't the mortgage servicing companies pushing to get more modifications? The answer might be because they are servicing this note, and will probably service the new one, too - they get paid either way. So who benefits from a loan modification?

The problem for many owners of property may not be the house or the value, as much as it is the payment.  With layoffs and decreased incomes, many people would stay in their house if they could afford the payment. Some owners are only trying to get the payment reduced to a level that they can pay.  Their "lost" equity is not as much of a problem as the payment, because values will return some day.

What if those who are upside down were offered something like this:

The example Property value is $250,000 with a Current debt of $300,000 at 7% on a 30 year mortgage for a monthly payment of $1,996.00

If the owner of the note would allow a rewrite of the terms that keeps the principle at $300,000 but changes the note to 4% on a 40 year mortgage, that would make the monthly payment $1,254.
That allows the borrower to use $740 to keep paying their car payment, and/or other bills.
This keeps the income stream alive to the lender.
And, it allows consumers to pay more bills.

The note owner receives other benefits, too.
The occupant of the property already likes the home and wants to keep it.
With the payment adjustment, the lender will still get the original principle, and have an income stream while waiting.
The benefits of keeping distressed properties from affecting market values are many, and may even speed value recovery.
Communities get more stable.
Borrowers who were given this opportunity may be grateful, and possibly more loyal to the ones who allowed it.

The alternative to a re-write includes:
no income stream,
loss of principle,
expenses for foreclosing,
expenses for maintenance,
expenses for eviction,
decreased property values,
battered reputation

Maybe servicers charge extra fees for monitoring/managing a foreclosure. There is a solution out there somewhere, but it probably won't come from the servicing companies.

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

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Your logic & math make perfect sense!  However, rumor has it that the Banks make MORE money if they foreclose!  Something about their insurance policies.... Know anything about this runor????

Posted by Kathy Opatka, Serving Ocean City, MD, & The Delaware Beaches (RE/MAX CROSSROADS) over 10 years ago

Richard, In  my area loan mods would only make sense if the principle balance was adjusted to match current market value. If not then the mod is just a temporary fix. Values are down almost 70% from late 2006 and these home owners will be upside down for at least a decade.


Posted by Bryant Tutas, Selling Florida one home at a time (Tutas Towne Realty, Inc and Garden Views Realty, LLC) over 10 years ago

@Kathy - are their other loans affected if values keep going down?

@Richard - for a workout, an owner needs to put something in the pot, too. By agreeing to the principle and the payment stream, they also help the real estate market and help values recover faster. If they bought the property to flip, your idea may be correct, but if this is the home they live in, why wouldn't they "appreciate" being able to stay there?

Posted by Associate Broker Falmouth MA Cape Cod Heath Coker, Heath Coker Robert Paul Properties Falmouth MA (http://www.CapeGroup.com & http://www.REindex.com) over 10 years ago