Wednesday, June 24, 2009

Do Loan Modifications Really Work?

Do Loan Modifications Really Work? Fitch Ratings has put out a report examining the effectiveness of loan modifications in terms of keeping homeowners out of foreclosure in addition to a recent case study by the Feldman Law Center.

(PRWEB) June 24, 2009 -- Fitch Ratings has put out a report examining the effectiveness of loan modifications in terms of keeping homeowners out of foreclosure. Their findings make the initial reports of massive failure rates seem like the good old days. Reports that had come out earlier in year found that fifty percent of modifications done in the first half of 2008 had gone back into default by year-end. The new study by Fitch estimates that between 65% and 75% of modified subprime loans will become 60-days or more delinquent again within a year of the loan modification.

Modifications can combine lower interest rates, maturity date extensions, changing from adjustable to fixed interest rates, and the reduction of principle. Of the four, principle reductions are statistically the best way to ensure the long term success of a loan modification. According to LPS Applied Analytics, modifications that included principle reductions have a 25% lower re-fault rate than those without a reduction.

Fitch's numbers concurred with those numbers, finding that modifications with principle reductions had a 40% to 50% chance of a re-fault. Not surprisingly, Fitch found that modifications where loan principle was increased due to missed payments and penalties being added to the backend of the loan had a re-fault rate of 60% to 70%

At issue is whether homeowners going it alone in negotiations with lenders are getting enough in the way of concessions to make their modifications sustainable. The do it yourself modification typically takes into account only the homeowners income in relation to a modified payment. Lenders, who are trying to mitigate their own losses during the negotiation process, aren't volunteering to give more than what the homeowner is negotiating for during the process so the modification ends up buying time but not much else. Additional consumer debt and other expenses are often not factored in to the negotiations leaving the homeowner with a continuing monthly payment deficit which then leads to re-default.

One solution to this problem is for the homeowner to retain professional counsel to both analyze the total financial picture and to negotiate the modification according to what is going to work within the specific circumstances of the homeowner. The objectivity and experience of a professional negotiator will undoubtedly yield better a better outcome for the loan modification, which in turn will result in a sustainable monthly payment.

A Loan Modification/ Debt Settlement Case Study by the Feldman Law Center

Loan modifications and debt settlements are often thought of as separate processes without any crossover values when, in fact, coordinating the two activities can have some major advantages. Don and Shannon R. (names changed) are Feldman Law Center clients that recently synchronized their loan modification and debt settlement for maximum results.

Starting 15 years ago with a small investment, Don and Shannon had built their manufacturing business into a huge success. The money allowed Shannon to stay home to raise their six year old son, paid for family vacations, and gave them the opportunity to build their dream home which they planned to live in for the rest of their lives. As the economy began slowing, so did the business for their manufacturing company. Compounding the problem, the interest rate on their mortgage began ticking higher, adding hundreds of dollars to their monthly payment.

Not wanting to lay off employees that had worked for the company since its beginning, Don first cut his salary then, as business continued to slow down, stopped taking his salary altogether. They could live off of their savings for a while, but their monthly overhead as well money owed to their general contractor for the completion of their home would deplete the account within a few months. Needing to tap the equity in their home, they had it appraised in preparation to apply for a home equity line or a second mortgage. The appraisal came back with bad news; there would not be enough equity in the home to get approved for either one.

With no other options, Don and Shannon would have to use credit cards to cover their monthly deficit until business picked up again. There were and handful of sizeable orders that had been pushed back by a quarter or two. If even a couple of the orders came through, Don could catch up on his own back pay and, in turn, pay down the accumulating debt balance on the credit cards they were living on. It would be a matter of a couple months, which they both felt confident about getting through.

Months passed and the orders they were counting on never materialized. Their credit card balances had grown to a point where sustaining payments to their creditors and the mortgage would be impossible. After missing their first mortgage payment, Don and Shannon called The Feldman Law Center to see if they could get their mortgage modified from an adjustable to a fixed with a lower interest rate.

At their initial consultation, their financial assessment revealed the challenges they were having with their credit cards in addition to the mortgage. Their consultant, seeing an opportunity to save Don and Shannon thousands of dollars per month suggested that they start their loan modification combined with a debt settlement immediately, to which Don and Shannon agreed.

They initiated the debt settlement process and decreased their payment by a total of 47% immediately. Four and a half months later their loan modification was completed. Here's a summary of their savings with a combined loan modification and settlement:

Don and Shannon credit card payments before they started their debt settlement totaled about $3,800 per month. Starting the debt settlement process cut their payment to $2,014, a savings of $1,786 per month. Additionally, they will be credit card debt free 48 months from starting the program.

Their loan modification with GMAC resulted in their mortgage interest dropping from 7.2% to 4.45%, saving them $1,270 per month for the next five years. Their interest rate becomes adjustable at that point but they will no longer be making credit card payments due to the completion of their debt settlement.

Their total combined savings from the combination of their loan modification and debt settlement is over $3,000 per month. Their savings over the next five years will total over $150,000

After initiating their loan modification and debt settlement, Don and Shannon were able to sell a part of their business to another manufacturer, saving overhead and allowing Don to resume taking his salary, although at a lower level. Even with his cut in salary their monthly budget covers their payments due to the thousands they saved on their mortgage and credit card payments. They credit The Feldman Law Center, not only for saving them thousands of dollars but with giving them their lives back.    

The Feldman Law Center is an experienced provider of attorney driven loan modifications. Prior to entering any negotiations, we analyze our clients' complete financial picture to ensure that each loan modification brings our clients' mortgage payments back in line with their current financial situation. Equally important, the team at The Feldman Law Center designs their strategies to make sure that those clients can stay in their homes and avoid foreclosure for the short and long term. We understand that there is no room for error as a foreclosure nears so the handling of each case is performed with care and professionalism. When it counts, you can depend on The Feldman Law Center to deliver the best result possible for your loan modification.

Please take a minute to review one of our testimonial videos:

http://www.youtube.com/watch?v=pxCmlRZzn-M

    
Legal Disclaimer
The information contained herein is provided for general information and advertising purposes only and is not intended to convey a legal option nor legal advice for any particular case or situation. Nothing in this article shall create an attorney-client relationship. Nothing sent to this law office via e-mail shall constitute an attorney-client relationship. Nothing contained in this article shall be construed to be a guarantee or prediction of result. Prior results are provided for general information purposes only and do not guaranty, warranty or predict a similar outcome with respect to any future matter. Results achieved depend on individual circumstances and not everyone will qualify or be successful in restructuring their mortgage loan.

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Posted by prolink at 5:45 AM

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