Call Now 866-332-8595

Consumer Counseling Loan Modifications

Loss mitigation or Loan Modification is used to describe a third party helping a homeowner, a division within a bank that mitigates the loss of the bank, or a firm that handles the process of negotiation between a homeowner and the homeowner's lender. Loss mitigation works to negotiate loan terms for the homeowner that will prevent foreclosure. These new terms are typically obtained through a loan modification, short sale, deed in lieu of foreclosure, cash-for-keys negotiation, or a partial claim loan or other loan work-out. All of the options serve the same purpose, to stabilize the risk of loss the lender (investor) is in danger of realizing. The different options are available to homeowners to try getting the homeowner to "perform" (pay timely) and cure the potential loss the lender/investor projects incurring through the foreclosure process and auction sale of the property.

Overview of Loan Modification
Loss mitigation and Loan Modification has been a tool used by lenders for decades, but recently it has experienced tremendous growth. This rapid expansion was in response to the dramatic increase in foreclosures nationwide. Previously Loan Modification & Loss Mitigation was only a small department within most lending institutions. The ten year period prior to 2007 spurred rapid year over year increases in home prices caused by low interest rates and low underwriting standards. Loss Mitigation was only needed for extreme cases due to the homeowner’s ability to repeatedly refinance and avoid defaulting.

Beginning in 2007 the mortgage industry nearly collapsed. Large numbers of lenders went out of business and the rest were forced to eliminate all of the loan programs that were most prone to foreclosure. These foreclosures were mostly caused by the packaging and selling of subprime and other risky mortgages. The transfer of ownership from mortgage lender to third party investor proved to be disastrous. Lenders wrote risky loans and sold them without being directly affected by the borrower’s inability to pay. This practice prompted mortgage lenders to lower their requirements of mortgage approval to the lowest levels in history. This resulted in millions of unqualified people obtaining mortgages. Lenders sold pools of these loans to investment firms who packaged and resold them to the public in the form of bond issues. When the homeowners started to default on their mortgages and the bonds began to be considered too risky for investment, the investment houses could no longer sell the bonds. When the bonds stopped selling the investment companies stopped purchasing newly originated mortgages. The lenders were unable to sell off the new mortgages coupled with the investment firms demanding the lenders buy back the bad loans previously sold; halted the regeneration of capital necessary to maintain the business of lending money. Since 2007, over 200 mortgage companies were either forced to close or go bankrupt.
With the surviving lenders faced with mounting losses from foreclosures, lenders were forced to tighten lending guidelines. This means people that were able to previously qualify for loans are now unable to do so. Many of these people are in risky subprime, adjustable rate and negative amortization loans are falling victim to dramatic payment increases; without the ability to refinance out of these loans the only answer for many is foreclosure or Loan Modification and Loss Mitigation. Banks are typically willing to offer a solution to avoid foreclosure due to the costly legal fees due to differing foreclosure procedures from state to state.

The decrease in home values (housing correction) created a market with fewer qualified borrowers than homes for sale. When there is less demand the prices drop. Home values were at highly inflated levels prior to this due to historically low interest rates and the steady decline of credit requirements for the homeowner to qualify for a mortgage. This has lead to a real loss of equity for many homeowners throughout the country. With less equity homeowners are less likely to qualify for a loan that will refinance them out of a risky loan; with less equity less homeowners are able to qualify for HELOCS or a 2nd Mortgage in order to pay for financial emergencies.

For many homeowners the loss of equity has been extreme enough to cause to be upside down on their homes. “Upside Down” or negative equity is when the home is worth less than the amount owed by the homeowner. This has created a situation for homeowners wherein their home, which was previously their most valuable asset, is no longer an asset at all. Such homeowners are more and more frequently 'walking away' from their mortgage obligations and letting the home go into foreclosure.

Loan modifications offer a solution to homeowners who are upside down on their home and who have experiences a hardship but would still like to keep their house and avoid foreclosure.

Consumer Counseling is here to help consumers and review options so that client’s are able to make educated decisions and do what is best for them and their families.

Take a moment and apply now and let one of our experts educate you on some of the options that are currently available. APPLY NOW!

Loan Modification Benefits
The most common benefit to the homeowner is the prevention of a foreclosure because loss mitigation works to either relieve the homeowner of the mortgage obligation or create a mortgage resolution that is financially sustainable for the homeowner. Lenders benefit by mitigating the losses they would incur through foreclosing on the homeowner. Immediate foreclosure creates a tremendous financial burden on the lender. Loss mitigation allows the lender to take a lesser loss right now in order to avoid the much greater losses caused by such foreclosures.