A short sale usually refers to a scenario in which the Seller's loans are greater than the than the house's market value.  Simultaneously, the Seller is having trouble paying his mortgage and foreclosure may be around the corner.  Even if the Seller sells the home, the money received for the home will come up short in covering the Seller's loan(s).  That's why we call them short sales.  Typically the goal of a short sale from the Seller's perspective is to have the bank forgive them the difference between the market value of the home and outstanding loan balance(s) of their mortgage(s).  This is considered a "settlement" on the homeowner's credit report and is not dear as damaging as a foreclosure.  In addition, according to the Mortgage Relief Act, as long as the property is their "homestead", then the lender cannot force the homeowner to pay taxes on the loss.  In this situation, the short sale is virtually risk free.

Don’t refer your short sales out and lose both your client and a huge chunk of your commission! We step in once you have identified SS potential and collect all documentation for SS package. We become the negotiator for the bank as well as the point of contact for your homeowner and the buyer’s agents. Includes: RELAY (online mgmt platform), eFax, Docusign, CRM (contact relationship management): Total Savings & Value : $880/yr

Save your clients, build a huge referral base, and make money! The most prevalent method of loan modification is an interest rate reduction, which involves establishing a fixed reduced rate of interest on a permanent basis or for an extended period of time. Principal writedowns are also very prevalent. Includes: RELAY (online mgmt platform), eFax, Docusign, CRM (contact relationship management): Total Value : $880/yr

Who qualifies for a loan modification?

Anyone with a hardship including loss of job, income reduction, death in the family, divorce, etc. qualifies for a loan modification.  "Positive/negative" hardships qualify for loan modifications as well.  An example would be that you are self employed, and you have expanded your business and are currently over extended.  With declining markets/home values, your (positive) business growing could be a (negative) hardship where you are not able to pay your mortgage with the existing terms of the loan. 

Do you have to be late on your payments?

Unlike a short sale, you don't have to be late on your payments to successfully negotiate a loan modification.  Also, a loan modification with no late pays does NOT touch your credit!  You just have to be willing to submit a detailed hardship letter, current financials (income vs. expenses), and proof of income to start the process.  For the homeowner that has lost everything else does not want to short sale their home, this is the way to give them that remaining sense of pride with enabling them to save their home and to stop the foreclosure process. 

What can you expect from a loan modification?

Loan Modification Goals & Expectations:

_____ Principal balance reduction to reflect market value

_____ Interest rate reduction for interim

_____ Permanent interest rate reduction

_____ Delinquent payments moved to the back of the loan – not repayment plan

_____ Actual deletion of delinquent payments and fees

_____ Removal of bank fees from delinquency

 
“The most prevalent method of loan modification is an interest rate reduction, which involves establishing a fixed rate of interest for an extended period of time. Lenders prefer this option because it ensures that there is a continued stream of payment and it prevents more drastic measures, such as foreclosure or a short sale. Lenders, of course, do not want to resort to a foreclosure or a short sale because they stand to lose an inordinate amount of money.

The effect of the foreclosure on the borrower is sadly not a consideration to the investor and lender, though the presentation and the facts of the borrower’s condition do impact the decision. This is why it is imperative to use a loan modification specialist to present the strongest possible case to the lender for the modification. The amount of equity in a home is a crucial factor affecting the modification. The lower the equity in the home, the greater the chances are for a modification service. The level of equity depends on the overall property value, which a homeowner can generally determine by comparing the sale value of other homes in the neighborhood and the trend of the sale prices. The greater the equity in the home, the less motivated a lender is to allow a modification. Other criteria considered in the loan modification process include whether the loan is based upon an adjustable rate. Adjustable rate loans are preferred for qualifying for the modification. The adjustable rate should be coupled with a borrower who is behind on payments and who has a verifiable, reduced income. This reduced income is known as the homeowner’s hardship and is used as leverage in the modification process.

The Future Loan modifications are here to stay! Legislators and government officials are pushing new proposals and legislation to save homeowners (and the economy). The FDIC recently unveiled its own proposal from Chairwoman Sheila Bair to streamline the process. “It is imperative to provide incentives to achieve a sufficient scale in loan modifications to stem the reductions in housing prices and rising foreclosures,” the Federal Deposit Insurance Corp. said in a statement on November 14, 2008. One of the key elements of the proposal is that housing payments for the delinquent borrowers would be reduced to 31% of their income. The plan would help 2.2 million borrowers in obtaining loan modifications. Bair’s proposal is commendable but it is only one of several options currently being considered. However, regardless of whether the FDIC’s plan is approved or whether alternate legislation prevails, borrowers are the beneficiaries and loan modifications are here to help keep people in their homes. “

 -From “The Crux and Craze of Loan Modification” by Andy Warshaw, J.D.