Foreclosures are ordinary occurrences. Thousands of people lose their homes to foreclosures and every year, it seems that the number of people facing such problem gradually increases.
Typical as it may seem however, foreclosures are not pleasant events. Aside from the fact that it will render many Americans homeless, it also involves pile of paperwork and tedious process that involves legal, marketing, and sales aspects.
As such, the federal government points out that modifying the structure of mortgages should be considered. Many issues rise – including the argument that if the U.S. Treasury provides a fund to compensate lenders’ loses, they will eventually encourage more lenders to tolerate foreclosures. In contrast to the proposed funding, below are some of expert advices on how foreclosures should be dealt with.
1. Ensure that investors do not get in the way of making modifications in loan terms and agreements. If real estate companies own mortgages, significant alterations that suit the needs of the clients can be made right away.
Take the case of Ocwen. The firm had adopted a loan modification that takes the needs and capabilities of its debtors and investors in consideration. They tried to determine how much a homeowner can pay in relation to the anticipated house price declines and the probability of unemployment.
In line with such, CEO William Erbey notes that they also answered the primary concern of most investors – “Will my return on investment be better or worse with loan modification?”
2. Real estate companies should make it a point to maintain continuous contact and communication with the homeowners. They should not wait for delinquencies such as missed payments before they try to get in touch with the debtor and try to resolve the problem.
Foreclosure problems should be prevented not treated. Some experts point out that the problem stems from the fact that most servicing agreements state that loan modifications cannot be made, not until the debtor is already three months behind his monthly payment.
It will be best if the real estate company or the lending company will propose new repayment schemes involving lower monthly payments, modified repayment dates, or longer mortgage terms regardless based on its estimated capabilities of the debtors.
Moreover, they should make sure that they can devise effective delinquent debtor communication so as to promote early negotiations and loan solutions instead of inevitable foreclosures.
As reflected by the campaign of IndyMac, a real estate company, letters containing debtor-friendly notes such as “We want to help you stay in your home” receive higher response rates than those which blatantly ask the debtors for financial information.
3. Foreclosures should be regarded as essential components of a struggling real estate industry. While some people think that a bill banning foreclosures should be prevented, they should realize that such can lead to an increase in overall mortgage rates.
Moreover, such may also discourage lenders from providing mortgages. As a result, the bulk of the American population might suffer more. Also, people should recognize the fact that there are really some who deserve to lose their homes, primarily because they are financially incapable of paying for their loans. Some people are even financially “premature” to get a mortgage.
4. Last but not the least; real estate companies and lending institutions should be certain that if ever they make modifications on the mortgages, the new terms and agreements should ensure that homeowners will not default on the payments again. Otherwise, the whole loan restructuring process is pointless.
Some experts note that loan modifications limited to changing the adjustable rates into fixed mortgages do not provide long term solutions for the borrower. Instead, other drastic alterations such as JP Morgan Chase’s principal loan reductions should be considered.