What Is Loan Restructuring?

Why Loan Mods Stink

As mentioned in previous posts, loan modifications, as practised by most major banks,  do not offer the results most homeowners had expected. Very few are altering the loan balance, yet millions of mortgages are upside down, many, especially in California, by hundreds of thousands of dollars.

What did we expect? We thought that the huge influx of tax payer money from TARP to keep the banks in business would result in more consumer-friendly lenders.  What were we thinking? We were  massively deluded. When banks have the upper hand as they do when homeowner/consumers are petitioning for a better deal, they will do the obvious. Take all the time in the world for the process, then order up massive amounts of paperwork, then lose the paperwork and finally offer a tentative agreement, possibly with a big cash payment,  diddling  as long as possible before making it permanent.

How Homeowners Can Gain the Upper Hand

What’s the alternative? How can homeowners shuck the petitioner role and instead gain the upper hand? Let’s remember that banks are regulated.  Yes, during the boom years many of the regulators were asleep at the switch and irregularities and downright fraud became business-as-usual. Despite the lack of enforcement, the laws and regulations still exist and did exist even when not well enforced.

Today, specially trained attorneys are seeking to force the banks to restructure the loans done incorrectly, irregularly or even downright illegally. Many avenues of approach exist. Sometimes banks or brokers did not follow regulations in the origination process; sometimes the entire loan itself was a complete fraud. But, federal law does cover these situations. In these cases the law gives homeowners the upper hand.

What Is Loan Restructuring?

Really, this is what happens when regulations and laws are actually enforced. Oversight, we now realize, is key for the financial industry as with so many others.  Loan restructuring can have several possible forms. Complete loan rescission is one possible outcome.  The lender may issue an entirely new loan with a new balance, a new interest rate and even a new investor or any combination of these. Alternatively, the lender may agree to a financial settlement. It all depends upon the specific original loan itself.

Certain types of loans can be restructured; others cannot.  Stated income loans are  prime candidates for restructuring as well as ALT-A, Adjustable-rate loans [ARMs] and ARMs that can negatively amortize [neg-AMs] along with the famous Sub-Prime loans.

If you have one of these types of loans  and have an interest in gaining the upper hand over your bank, contact me. Sorry, but for right now, I can help only those loans on property in California.

For other states, I NOW  have additional resources.  Give me a call at 626-641-0346

Loan Modifications: Win-Win

We’ve all heard about the sub-prime loans offering teaser interest rates to unqualified borrowers. Got 550 FICO? No problem. Got no income? No problem. Those loans blew up last summer, but many people are still saddled with them and, as most were adjustable, thousands, if not hundreds of thousands, are due for re-adjustment–upwards, of course–this year.

Let’s say you’re one of these borrowers waiting for the ax to fall. Or, maybe you’re already behind. What to do? So, what should you do? The answer is simple: CONTACT YOUR LENDER. This is true no matter what the reason for your delinquency-job loss, divorce, hospitalization.

Make sure you speak to the Loss Mitigation Department and not to the consumer help line on your mortgage bill.

As a matter of simple business, the biggest lenders are already offering loan modifications to troubled borrowers. The major problem for lenders is that distressed borrowers tend to resort to denial first, then stick their heads in the sand for the duration. Over 90% of the time, these borrowers never even contact their lenders to explain their situation or try to negotiate a solution. Don’t do that!

So, what kind of deal might your lender offer?  Oh, the lender may offer to bring your payments current, and you can start again with no back debt. Or, if you actually contact the lender and supply financial data with supporting documents [tax returns, W-2s, pay stubs], the lender may drop the interest rate to prevailing rates, even if the borrower has bad credit, forgive 25% or more of the original loan, and bring payments current. That’s not too shabby!

It pays to contact your lender. Even if you cannot make the new payments due to lack of income, the bank may well offer a financial incentive to put the house on the market as a short sale. This is a win-win.

If you are unsure what to do, call me at 626-641-0346 and I will help you.