The volumes of data accumulated on the housing crisis, the thousands of opinions expressed by experts and pundits on a solution, and the billions allocated by Federal programs to assist distressed borrowers offer little comfort to the many homeowners opening first, second or third Notice of Delinquency communications from the lenders. In the midst of a slow economic recovery, many homeowners undoubtedly fight to stay afloat in the midst of job loss, shrinking savings and rising expenses. Despite their best efforts, they find themselves facing the stark prospect of losing their homes with no concrete answers on how to keep them.
But the distressed borrowers of 2011 are wiser and better-informed than their counterparts were at the height of the meltdown in 2009. They know to proactively reach out to their lenders to work out loan modifications --- if they haven’t heard from their lenders first. Banks devote a surprising amount of resources to borrower outreach programs aimed at keeping “performing loans” from becoming non-performing assets that eventually end up at a foreclosure auction. Moreover, in response to the growing number of foreclosures, the government launched numerous “Home Affordable” initiatives incentivizing lenders to negotiate affordable terms with borrowers. So why are so many homeowners still staring down the barrel of foreclosure with no hope in sight?
Sadly, both lender and government – initiated modification programs have been ineffective in stemming the tide of foreclosures. First, lenders deny a large number of modifications due to incorrect or incomplete income and hardship submissions from borrowers. Adding insult to injury, highly publicized lender blunders have resulted in lost files, protracted modification transactions, or outright denials as a result of underwriting errors. Additionally, a significant number of hard-pressed borrowers often didn’t qualify for loan modifications because their monthly mortgage payments were less than 31% of their gross monthly earnings, the government’s minimum requirement to qualify for modification under the flagship “Home Affordable Modification Program (HAMP).” The prevailing reason that summates the ineffectiveness of modification programs; however, is simple: these programs exist solely to minimize the damage to bank balance sheets and the nation’s economy; they provide little solace to homeowners dreading the next delinquency notice in the mail. Borrowers need an advocate.
Borrowers in need should seek out a third-party negotiator as soon as possible. These negotiators understand lenders’ complex requirements and underwriting guidelines driving their modification programs, and can use that expertise to help borrowers prepare documentation package submission that will improve the chances for a successful modification. As an added benefit, negotiators also understand how to leverage government programs to the homeowners’ advantage. Unfortunately, negotiating loan modifications with lenders could prove daunting even with proper documentation. Negotiators can also represent the homeowner through the entire modification transaction to ensure a favorable outcome.
A reputable negotiator should have frank, up-front discussions with homeowners about the financial difficulties they face. A loan modification may not be the best choice. In 2010, 20% of modifications facilitated through HAMP re-defaulted, and those homes returned to the foreclosure track. If homeowners don’t have the resources to meet the terms of a loan modification, a short sale of the property releases the borrower from the mortgage obligation. While a short sale is more complicated than a loan modification, it often emerges as a practical alternative to foreclosure. As an added benefit, negotiators can leverage current Federal programs that offer cash assistance to homeowners choosing the short sale path. Full-service negotiators should have expertise in facilitating loan modifications and the resources to, if necessary, handle complex short sale transactions from beginning to end.
Homeowners: if you’re behind on your mortgage, there is hope. Having the right negotiator on your side makes all the difference.
Raffi Tal has been successfully executing short sales since the early 90's and currently oversees all files as the company’s EVP. Under Tal’s leadership, I Short Sale, Inc. has become one of the nation’s leading firms in short sale volume. As an authority in the field of loss mitigation, Tal has been a guest speaker on the issue in various conferences, seminars and for a variety of media outlets.
