The Las Vegas Loan Modification and “Desperate Loan Mod Seekers”
Most people applying for a loan modification are desperate to keep their homes and the banks know it. This is the most likely explanation for why the few homeowners, who actually get a loan modification, sign a promise to the bank they cannot afford. How do we know they cannot afford the loan modification? Because the facts tell us so: More than 70% people those who actually get a loan modification go into default anyway. Even with an interest rate reduction, the principal balance was too high to make the payment low enough to be affordable.
Borrowers who cannot (or who do not) want to make their payments are usually filled with hope that the bank will reduce their principal balance. If you have a Fannie Mae, Freddie Mac loan, you will not get a principal reduction, unless someone else contributes funds to reduce your principle balance. According to the office of the Controller of Currency, the only loans that have received a principal reduction are portfolio loans or those held by a private investor. It is against Fannie and Freddie’s policy to reduce principal.
We still have many people who ask us: “What are the real chances of me getting a loan modification?”
We interviewed our friend, Lee Honish, Former Head Loss Mitigator for IndyMac Bank’s HELOC Division and twenty-two year career asset manager who had this to say:
“Loan files are graded by severity so let’s start by being practical. You are either in one of three categories:
Current on paying your mortgage:
If you are current on your payments the ability to modify your loan will depend on the original type of loan you obtained.
30, 60 or 90 days late on your mortgage:
This is the early stage of being in default. Typically, the bank in this stage is inclined to attempt a loan modification, forbearance agreement, or any other type of program. Until your mortgage is 91 days late, it is still deemed ‘salvageable’, however 90% of mortgages that are 90 days late end up in foreclosure anyway.
91 to 181 days late on your mortgage:
The percentage of mortgages that are salvaged in this stage is 10%. If you are in this category you will be offered (on average), a trial loan modification, not a permanent modification. Are there exceptions to this? Yes, but we are recommending a realistic approach to loan modifications. Please note that only 10-15% of homeowners who apply for loan modifications in this category are ever given a permanent loan modification and getting a reduction of the principal balance is almost non-existent. It is rare when a trial loan modification converts to a permanent even if you pay all your trial loan payments on time.
In any of these scenarios remember this:
If the bank is offering a trial loan modification, they are only offering a one-time, 3-6 month (typically) payment plan. This is also a great opportunity for the bank to collect all of your financial information in case you stop making payments. They will know exactly where to come and collect.
If the bank is discussing what is called a ‘full recast’ (essentially a permanent, re-amortized loan modification), then you are on the right track.”