With each foreclosure costing the lenders $40,000 per home, more and more lenders are becoming more aggressive in reaching out to homeowners in foreclosure and even homeowners in default. But not because of pressure from Washington but because of the all mighty dollar. Even the U.S. Treasury Department and the FDIC are implementing a plan to guarantee loans to make it easier for lender to offer loan modifications on a national level.
However, it should be pointed out that lenders do not own the majority of paper that they originated. Many lenders have utilized large investors to fund their loans and the investors do not want their loan modified.
When a loan is modified, usually the interest rate is lowered to reduce the monthly payment to make it more affordable for the homeowner. This is a problem for the investors because it reduces their yield on their investment and they did not invest their money to make less money.
In order lenders to be able to reach out to more homeowners at risk of foreclosure, they will have to get final approval for the loan modification form their investors. That is a tall order because investors are not in the business of making less money. They would rather just get their money back. To get their money back the homeowner usually needs to sell the home or refinance the loan or even foreclosure house steps on the home and take a loss from the sale on the courthouse steps. The problem is home values are heading south. So much so that many homeowners are upside down on their mortgage so selling or refinancing is not an option. This is quite the catch 22.
Lenders will have their work cut out for them in the future to work get to approvals from their investors as many investors are threatening legal action if they modify their loans.
However, it should be pointed out that lenders do not own the majority of paper that they originated. Many lenders have utilized large investors to fund their loans and the investors do not want their loan modified.
When a loan is modified, usually the interest rate is lowered to reduce the monthly payment to make it more affordable for the homeowner. This is a problem for the investors because it reduces their yield on their investment and they did not invest their money to make less money.
In order lenders to be able to reach out to more homeowners at risk of foreclosure, they will have to get final approval for the loan modification form their investors. That is a tall order because investors are not in the business of making less money. They would rather just get their money back. To get their money back the homeowner usually needs to sell the home or refinance the loan or even foreclosure house steps on the home and take a loss from the sale on the courthouse steps. The problem is home values are heading south. So much so that many homeowners are upside down on their mortgage so selling or refinancing is not an option. This is quite the catch 22.
Lenders will have their work cut out for them in the future to work get to approvals from their investors as many investors are threatening legal action if they modify their loans.
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