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Short Sale Outcomes why Loan Modifications don’t solve the problem

Posted in Credit Notes,Financing- Loss Mitigation,Real Estate,Welcome by Administrator on the September 20th, 2012

I have listened to recorded countless videos on how to convert homeowners off of loan modifications and into short sales. The basic reality that needs to be understood by both homeowner and agent is that when ANY paperwork is done on or for a short sale there is a 99% chance that there will either be a short sale or a foreclosure in the future.

Why?

Simple, excluding the 1% that hit the lottery and the homeowner gets a full rewrite or recast or even possibly an equity reduction on their existing loan terms, the reality is that they won’t!

It is just basic math.

If 99% of loan modifications do not convert to full new loans, why then do the banks keep pushing for them, why do agents help homeowners and why do homeowners want them?

Banks want information, Agents want to help homeowners and homeowners want to stay in their homes.

Here are the possible outcomes:

2, 5 or 10 year adjustment of terms and rate. This is the best case scenario when requesting a new loan modification. The horrifying reality is this, even if the homeowner makes every single payment they will eventually hit the end of the terms.  99% of these loans will not modify for a second time and all the homeowner has actually done is delay the inevitable sale of their home. To qualify for the longer term adjustment depends on the original loan. Basically the better the original loan the better the offer on the loan modification. A loan modification will always meet an end to its terms. Further it will correct the delinquent payments on their credit and in most cases becomes a short term fix for a long term problem need a very real solution
Trial loan modifications. There is a possibility of a trial loan modification becoming a short term loan modification. However the stats on homeowner not making payments even on trial loan modifications is staggering. The reality is simply this, if a homeowner gets a trial loan modification there is a 90% chance that it will go back in default (missed payment).

So the current market has created the band aid effect to get us through an election period and hopes that the economy and employment will magically all turn around.

Homeowners are trying hail marry passes to get to stay in their home and the banks/government are freezing the sale of REOs in an attempt to inflate home prices.

I still teach, preach and push this basic thought: Write it off, take the loss and move on! It’s a financial decision. Too much debt, too little income. Within 2 years, Short sale owners are able to go right back into the same bank they settled with 2 years ago and make an application for a loan… and get a mortgage approved. (Interest rates and Down Payments might be higher, but not much as you’ve settled to the terms of your previous loan by assisting in the sale of the property). You might find yourself gravitating back to the old neighborhood just in time to buy the neighbors property at current values.

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