If you’ve defaulted on your loan payments, you must be thinking of applying for a loan modification to save the property. We, the borrowers, think that it would be beneficial for the lenders and mortgage servicers to modify the loan rather than foreclose. But in reality, things are different.

As per a new report of the consumer advocacy group, mortgage servicers make more money if they foreclose the property. So, who are the mortgage servicers? They are the companies who collect the monthly dues from the borrowers and distribute it amongst the investors. It has been noted that the homeowners, lenders and investors generally lose money on a foreclosure whereas mortgage servicers do not.

What do homeowners think of foreclosure?
As homeowners, we think that a foreclosure would not be a good option for the lenders and investors. Both of them would lose money if they foreclose the property. It is believed that if a lender forecloses the property, he will have to settle for 20-30 cents on a dollar.

What do mortgage servicers think of forceclosure?
The loan servicers have different priorities and thus, do not think of foreclosures in the same way as the borrowers. Servicers do make profit when a property is foreclosed unlike loan modification wherein the servicers may face a loss. Also, the incentives offered to servicers in order to help avoid foreclosure are much less compared to the profits they make by foreclosing a property. This is one of the reasons which resulted in the $75 billion program to limit foreclosures by the Obama Government. The money would be given to servicers who would modify home loans.

(more…)

Last month, Federal Trade Commission (FTC) filed a lawsuit against a Florida-based company, which had victimized more than 3,100 homeowners nationwide with their loan modification programs. The firm has been shut down for now and they have even agreed to pay off $4.1 million judgment. Also, they have agreed to work under the close monitoring by federal officials in future. Such loan modification scams have become popular these days as large number of borrowers are looking forward to modify their loans in order to save their houses. So, what are the signs one should watch out for in order to avoid these scams? Just have a look:

• Guarantee of loan modification: No company can guarantee you a success in preventing foreclosure as it would be totally the discretion of the lender whether or not he would consider your request. So, if a loan modification company guarantees you a success in preventing foreclosure without considering your financial situation or mortgage details, chances are that it might be a scam.

• Upfront fees: Check out for the upfront fees charged by the lender. Though, not all fees are illegal, still it’s better to not pay anyone who’s not a licensed law firm or attorney. There may be some loan modification companies who can charge you upfront fees without even explaining the program details. Avoid dealing with such companies as they could be scam artists.

(more…)

If you’re facing foreclosure, you can get help from your mortgage insurer. Surprised? Even I was surprised when I heard of it. Most of the mortgage insurance companies have loss-mitigation departments. The loss mitigation experts try to negotiate with the lenders and borrowers for various repayment plans.

Lenders also have their team of loss mitigation experts but most of the borrowers do not feel comfortable in negotiating with them. On the other hand, it has been noted that borrowers sometimes are more receptive to mortgage insurers. The insurer’s loss mitigation team will not call the borrower for payments but they would rather try to workout an option for the benefit of the borrowers. This attracts the borrowers to work with the mortgage insurer’s loss mitigation team.

Why will mortgage insurer help a borrower who’s facing foreclosure?

If a lender forecloses a property, it is the mortgage insurer who will have to reimburse the servicer and investor for their losses. This motivates the mortgage insurer and his loss mitigation team to negotiate workouts with borrowers and stop foreclosure.

How does the mortgage insurer’s loss mitigation department work?

The mortgage insurance companies get a list of insured loans that are in default. From this list, the insurance companies choose a group of people and contact them for a period of 60 days. The insurance companies send a letter to inform the borrowers as to who they are and why they are interested in their loan. The loss mitigation department also informs them about ways in which they can help them. If the borrowers do not respond to the letter or call the insurer, the loss mitigation department of insurance company calls them and tries to negotiate with them.

The borrower has to fill out a hardship letter informing them about his financial crisis. The mortgage insurer analyzes the borrower’s financial situation and recommends payment plans. The workout option will be finalized if the investor, servicer and mortgage insurance company approves it collectively.

(more…)