Friday, February 03, 2006

Lenders 'Bending Over Backwards' On Defaults

Market Watch looks at some reasons foreclosures are so low. "Many lenders these days are bending over backwards to keep borrowers in their homes. If you are eligible, that is, if there is any possibility that you can get back on track within a reasonable amount of time, they have several tools at their disposal to help people. What I'm talking about here is a relatively new cosmos in the lending arena called loss mitigation."

"If you have a legitimate reason for not being able to meet your obligation, they want to help. 'Where it is economically feasible, we do whatever we can to get 'nonperforming' loans re-performing,' says Bill Merrill, director of nonperforming loans at Freddie Mac, a secondary-market company which helps keep the mortgage money flowing from Wall Street to Main Street."

"Like most investors in mortgages, or conduits for investors, Freddie Mac works hard to keep borrowers in their homes. In fact, it demands it of the companies which collect monthly payments on its behalf, all in the name of what Merrill calls 'homeownership preservation.' 'We require, we measure and we incent,' says Merrill. And as a result, most companies which administer mortgages have what are variously known as workout departments or portfolio-retention sections."

"The size of these departments depend on the size of the servicer. Some have 'entire office buildings' devoted to the task; others just a few people. But no matter how big or small, the goal is the same: to keep those who want to remain in their homes in their homes."

"Your lender might even be able to help, even if you do not or cannot keep your home. For one thing, a qualified buyer could be allowed to take over your debt, even if the loan is considered nonassumable. For another, if you can sell but only for less than what you owe, the lender might agree to a 'short payoff' in which the company writes off the portion of your mortgage that exceeds the net proceeds from the sale."

"A third choice is to allow you to voluntarily transfer title of your home to the lender in exchange for canceling your entire debt."

"Here are some of the options lenders can make available to delinquent borrowers: Forbearance. An agreement that temporarily allows borrowers to pay less than a full payment, or no payment at all, for a set period. Forbearance is an option when you can show that funds from a bonus, tax refund or other source will let you bring the mortgage current at a specific time in the future."

"Reinstatement. Sometimes combined with forbearance, this allows the borrower to pay the total amount they are behind in one lump sum by a specific date."

"Repayment plan. An agreement that gives you a fixed amount of time, say six months, to repay what you owe by combining a portion of what is past due with your regular monthly payment. At the end of the repayment plan, you will have gradually paid back the amount that was delinquent."

"Loan modification. An agreement that permanently changes one or more terms of your original mortgage so your payment is more affordable. You and the lender may agree to add the missed payments to your loan balance, for example. You might turn an adjustable-rate loan into a fixed-rate mortgage. Or you could extend the number of years you have to repay."


At 8:47 AM, Blogger Ben Jones said...

'a secondary-market company which helps keep the mortgage money flowing from Wall Street to Main Street.'

I'd say it's the reverse. When prices fall across the board, this game will end. People won't want to stay on the hook for the next twenty years.

At 12:43 PM, Blogger Pointlines said...

Hey Ben:

Came across this blog that discusses the state of the housing market in Austrailia. Thought you might find it interesting since they seem to be about 6 months ahead of us here in the US.

Oh, and there is an article on AUS foreclosures there that show their number of foreclosures are now ahead of their latest bust back in the 90s.

At 5:34 PM, Blogger TJ & The Bear said...

I agree, Ben.

There's so many reckless and/or unfortunate borrowers out there that have been saved by increasing equity that you just know foreclosures would explode with prices simply leveling off. Since they'll not just level off, the tsunami of foreclosures will overwhelm any mitigation efforts.


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