As published in Scotsman Guide's Residential Edition, July 2008.
Mortgage professionals have seen the market swing dramatically in the past decade. Lending guidelines have swung from progressive to reactive, and equity has gone from unused to overextended.
Brokers who before couldn't take applications fast enough now struggle to find clients. With foreclosure rates at an all-time high, brokers need new strategies and tools to succeed. Loan modification has emerged as a tactic that brokers can use. By incorporating loss-mitigation and loan-modification strategies into their businesses, brokers can help homeowners who lenders would otherwise turn away. Loss-mitigation tactics can show lenders the benefits in modifying a current loan to avoid larger losses, homeowner distress and future community erosion.
Today, loan modification is mostly considered for homeowners facing foreclosure and is typically done as a last stand. But strategies can help homeowners in any situation, not just those facing foreclosure.
By suggesting loss-mitigation techniques instead of foreclosure or other options, brokers can help borrowers reap these benefits:
There is no negative impact on the borrowers' credit scores.
Homeowners avoid foreclosure, keep the home and can still sell it later at full market value.
Home values are not impacted.
Debt is forgiven instead of being settled through legal proceedings.
A new loan scenario that works with the homeowners' financial situation is created.
When used properly, loan modification can help homeowners meet their long-term financial objectives and make their loan more affordable.
One benefit is that it does not erode a community's home values. Unlike a foreclosure or short sale, there is no deed transferred. So regardless of the home's current value, because there is no recorded sale, the change in value doesn't impact surrounding property values.
Today's homeowners are only beginning to hear about loan modification. Now, brokers can show how it can work and make an impossible situation affordable.
There are two common loan-modification strategies. One hybrid strategy uses arbitration to forgive or restructure homeowners' existing loan balance so that they can refinance into a new loan. Commonly referred to as a liquidation strategy, it is similar to a short sale, in which the lender chooses to liquidate the asset.
The second tactic is a streamline strategy that deals with the current lender to make the existing loan work. Instead of refinancing into a new loan with workable terms, the existing loan is modified to be more affordable, to recognize the home's true value or both. For lenders, this is a "hold strategy" that allows them to keep the loan on their books. This saves time and money, and it helps homeowners achieve their financial goals while avoiding later problems for them and their lender.
When pursuing loss-mitigation options, brokers may wish to work with a third-party specialist. Look for companies that have borrowers' and lenders' best interests in mind and that work with complete transparency. This will help lead to the best outcome.
By integrating loss-mitigation and loan-modification tactics with their regular business, brokers can do more good for more clients.
Brian King, vice
president of communications for ModCo, develops business strategy and communications in a variety of industries. He holds multiple degrees from Chapman University and is vice chairman with Tenet Federal Credit Union. ModCo believes loss-mitigation and loan-modification strategies can aid any homeowner, not just those facing foreclosure. It gives more options to brokers, makes loans affordable for borrowers, protects bankers' assets and leads residential lending innovation. Reach King at firstname.lastname@example.org or (949) 544-8111.