More so then ever before, Mortgage Banks are looking for ways to avoid foreclose on delinquent Orange County CA. homeowners. So today, mortgage banks and homeowners, with the guidance of their real estate professionals, are working out creative alternatives to resolve non-performing mortgage loans. This type of mortgage loan workout is normally referred to as Loss Mitigation.
Here are some little known and interesting facts about Loss Mitigation:
1.) Fifty percent (50%) of the Homeowners who are foreclosed upon never initiate any “contact” with their mortgage bank from the date they miss their first payment.
2.) Mortgage Banks / Mortgage Insurers / Mortgage Guarantors absorb losses of more than $50,000 for every foreclosed conforming loan and $40,000 for every foreclosed non-conforming loan.
3.) Fewer home loans are now being foreclosed. Many conventional mortgage banks, as well as FHA, VA, FNMA and FHLMC require that all options to avoid foreclosure must be explored (ie: Loss Mitigation).
The benefits of Loss Mitigation are that Mortgage Banks and Mortgage Insurers can reduce Foreclosures, Save money, and Re-establish communication with Homeowners. Homeowners may be able to preserve home-ownership, or at least sell and relocate prior to foreclosure thus salvaging their credit and eliminating the stigma associated with foreclosure. The Real Estate Economy as a whole also benefits by preserving home-ownership rates, reduce financial losses caused by foreclosures, maintain a strong viable housing market, and eliminate the blight that may be caused by a vacant and neglected foreclosed home.
Today, due to the dramatic slow down in homes sales, and the drop in home prices, many homeowners find themselves in financial hardship. These hardships are usually caused by job loss, illness, disability, death in the family, relationship breakup or divorce, poor money and credit management, and other reasons. The good news is that many mortgage banks are agreeable to alternatives other then foreclosure. There are typically 6 different Options that the mortgage banks may consider for a homeowner who is in financial difficulty. These 6 options are:
Option 1: Rate Reduction Modification. This type of loan modification will permanently reduce the interest rate associated with the loan, thus lowering the monthly payment from the Homeowner.
Option 2: Capitalization. Capitalization means adding the delinquent payments into the remaining balance and updating the payment due date and perhaps “recasting” the payment amount. Capitalization may be used when other modifications would not be appropriate, such as, if the interest rate is already at or below the market rate, or if the delinquent amount due is just too much for the Homeowner to pay back within the specified period of time
Option 3: Term Extension. Term extension is extending the amount of time the Homeowner has to repay their loan to achieve a reduced monthly payment (i.e. 15 year mortgage extended to 30 years). Term extensions are often used together with an interest rate reduction or a capitalization modification.
Option 4: One-Time Assumption. Most mortgages are non-assumable, which means the loan cannot be transferred from one owner to another. However, as a form of loss mitigation, the mortgage bank may opt for a one-time assumption, in order to facilitate the sale of the property. Generally if the Homeowner can demonstrate hardship, Fannie Mae and Freddie Mac may allow a one-time assumption. HOWEVER, the transaction must be an “arm’s length” transaction. In other words, there cannot be any pre-existing relationship between the Homeowner and the individual assuming the mortgage.
Option 5: Loan Type Conversion. Some Homeowners with an adjustable rate mortgage (ARM) may not be able to keep up with increased payments during times of increasing interest rates. In this case, the mortgage bank may opt to modify the loan type to avoid increasing the interest rate. The loan could be converted to a fixed rate mortgage.
Option 6: Short-Sale. A short-sale requires that prior to the sale, the mortgage bank agrees that the sales proceeds from the sale of the Homeowners home will satisfy the debt, even if that amount is less than what the Homeowner owes on the loan. Many conventional loan mortgage banks prefer this method when the home is severely upside-down (ie: the home is worth substantially less then the mortgage debts owed). A Short Sale will still negatively affect a homeowners credit, but is far less damaging to ones credit rating (ie: FICO score) then a Foreclosure.
For more information about Loss Mitigation or Short Sales in Orange County, CA., please feel free to call us at: 949-388-3396 or email us at: Info@OCShortSaleInfo.com , or Text Message at: 949-283-4679
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