If you think about it loan modifications are the answer to the current Foreclosure crisis. It just makes sense.
Let me explain it to you.
Reason #1
When a lender has a loan in Notice of Default/ foreclosure it is viewed as negative debt and the lender is required to keep the same dollar amount of cash in reserves (Loan amount). This is a huge problem for them. Why? Because not only do they have the bad debt to deal with they have to put extra funds in reserve. That's basically their your debt. Keep in mind that they cannot lend out and they cannot earn interest on that amount.
That's why loan modification makes sense to you and them. If they modify the debt it's not considered bad debt anymore and they can remove the same amount from their reserves. They can lend that money out and can start earning interest on it. Most importantly It affects their financial statements for their investors.
Just like in any business the smaller the amount of negative debt they have on their financial statements, the more valuable their stock will be and they're save from being taken over by F.D.I.C.
Reason # 2
It is to the banks benefit to do a loan modification because they are trying to avoid foreclosing on the home. Most homes have lost 30%-50% of the value and it is projected to go down even further in 2009. Not to mention it will cost the lender anywhere from $20,000-$85,000 or more in today's market to foreclose.
Reason # 3
You can do it yourself. Call the bank ask for a workout package. In the package it will tell you exactly what you need. What they are interested in is that you can in fact pay the loan if they modify it. It has to make sense, if you have too much debt it probably will be denied. But is you have a decent debt to income ratio 38-45% you should be fine.
You will be amazed, you can probably lower the loan to what the home is worth and probably get a interest rate of a 4% rate for the life of the loan.
Good Luck!
Luis Pezzini
http://www.luispezzini.com Reo- Foreclosures Realtor.
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