Heath's Blog

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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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Comments

Realistically I am seeing far too many short sale homes that show lack of upkeep and repairs. It would be nice if there was some clause about maintenance.

Posted by Vickie Nagy, Vickie Jean the Palm Springs Condo Queen (Coldwell Banker Residential Real Estate) almost 10 years ago

People may be holding offf on repairs and maintenance because they know they are going to lose it to the bank. If they were given the opportunity to stay in the house long term, they might do the work.

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) almost 10 years ago

Do the loan servicers get paid based on volume?  If so, modifications could hit them pretty hard.

Posted by Will Nesbitt, Nesbitt Realty is a family-run brokerage. (Nesbitt Realty at Condo Alexandria) almost 10 years ago

Modifications still need servicing.

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) almost 10 years ago

Hello Heath.  My experience in lending leads me to believe that Americans are always lookin for something for nothing.  Now that it's actually DIFFICULT to get a mortgage approval the average borrower takes offense!  

Keep me in mind if i can ever help out with a client.  Our Credit Union is located in RI and we do many, many deals on the Cape.  

Posted by Mark Lebkuchner / Home Loan Specialist almost 10 years ago

I think Mark said it right, foreigners may haggle over price we are just cheap.

Posted by Charles Stallions, 800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl. (Charles Stallions Real Estate Services ) almost 10 years ago

When I wrote loans, most borrowers who were not cheap. The old days of 28 and 36 were pretty easy to understand. If it didn't meet the ratios, there was little an originator could do to get the loan done.  Now that I have been working with buyers for more than a decade, I find many are looking for a good buy, but few are cheap.

I did have competitors in the loan origination business (in the 80s) who carried blank tax returns in their cars so they could finance any buyer. Some of those people committed suicide rather than face their music.

I have found that borrowers don't know the criteria for a loan application well enough to create a "something for nothing" scenario. Originators are the ones who complete the paperwork, and originators direct the loan application.

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) almost 10 years ago

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