Until 2007 mortgage banks regularly would not wait too long after a loan went into default before they would start foreclosure proceedings. Usually, if you fell 3 months late on your mortgage payment, that constituted a default. As foreclosure rates began to increase to new heights, the mortgage banks saw their stocks decrease in value. A significant number of mortgage banks imploded and went out of business due to their high rates of foreclosure and defaulted loans. Mortgage banks always had Loss Mitigation options available to them, but they had rarely used them. Along with the US Government’s Making Home Affordable Programs that became available in 2009, the mortgage investors and banks began developing their own internal loan modification products and procedures for those loans that were not eligible for government programs.
The mortgage banks determined interest rates and terms of repayment of eligible loans for modification based on their own findings, closely measuring the financial result of foreclosing on a property versus modifying the loan under guidelines that they had put in place. As a loan is modified it improves the overall status and marketability of that investor’s portfolio, thus improving its value and investability on Wall Street.
Mortgage banks continue to offer their own Loss Mitigation options today, even though the government program has ended. The reason why is because the mortgage banks still would rather keep you in that loan rather than foreclose on that property, even though they have the right to do so! You can tell the mortgage bank does not want to foreclose, because they could come after the property after 3 months consecutive payments have been missed if they chose to do so.
Here is one more nugget for you. The mortgage bailout in 2009 was not for the homeowners, it was for the mortgage banks. Mortgage banks had suffered so much from 2007 to 2009 because of the default ratios, that the US Government believed it needed to step in to provide the bailout to them, not to you. The bailout along with the mortgage banks own internal modification programs allowed them to not only survive but to also take advantage of a far superior option than continuing to foreclose on properties and destroying themselves. Now the banks can bring your loan current from any arrears that have accrued on your loan by re-capitalizing the arrears into your existing balance, re-amortizing the loan and applying an interest rate that is slightly above today’s market interest rate. This allows them to not lose any money on the loan, cure a defaulted loan thus bolstering and strengthening their portfolio, and charge an interest rate that still pays them a profit. Now measure that option against foreclosing on a property that they may likely already be upside down on, not to mention the damage they do their already fragile portfolio by having another loan go into default.
Yes, the banks really want to modify your home loan, but they have made it so difficult that the average homeowner cannot navigate through all of the paperwork and poor service providers to accomplish their common goal.
