I think it happened about the time President Obama initially took office. He and his new administration were attempting to keep people in their homes. The extent of the Recession was unknown and it seemed to be a way if the payments were adjusted lower, that homeowners could ride out the wave of Recession and then, when back to work after the Recession, be able to afford staying in their homes. It all sounded so reasonable.
The problem is that the rules and policies for a loan modification are not favorable to allowing most homeowners to successfully obtain a loan modification, let alone successfully stay with one and stay current under the new loan payment program occasioned by the loan modification.
OVER 80% OF THOSE THAT APPLY FOR A LOAN MOD…GET REJECTED!
[8 out of 10 People Don’t Get a Loan mod!]
Could you re-read the banner above. That is correct, over 80% of the folks that make application for a loan modification get rejected. That means less than 20% can expect to even get a loan mod. So 8 out of every 10 property owners you encounter in your practice will NOT be able to get a loan modification.
MANTRA: Make these people your friends as they will be back as soon as they get the loan mod application out of their system and have been rejected.
Why the high rate of rejection? Loan modifications are all formula based. They are calculated upon the party’s ability to make a mortgage payment based upon their gross income. The problem is that about 40% of the people seeking a loan modification made TOO MUCH MONEY.
Why would any bank or lender reduce monthly payments on a mortgage loan when a party can clearly afford the monthly payment? That knocks off about 4 out of 10 loan modification applicants.
Oh, the other 40% that are rejected? They make too little money. The lender can only reduce the payment so low and about 40% of the applicants have income levels below that which would allow them to qualify for a loan modification.
In other words, the bank can’t reduce the payments and interest rate enough to allow 4 out of 10 people to get a loan modification as they just don’t make enough for such a plan to be successful.
That’s less than 20% that actually get a loan mod. Make these people your friends!!! Why?
Read on and you will see that even the folks that get a loan modification will want to contact you afterward.
OH DID I MENTION THAT 64% OF THOSE THAT DO GET A LOAN MODIFICATION FAIL WITHIN 9 MONTHS!...THE FAILURE RATE IS HIGH!
So if you do get a loan modification, there is a high probability that you will fail at the payment structure associated with that loan modification deal. Why? Why would over 64% of the people fail at an approved loan modification? That is correct. Of the under 20% that actually get a loan modification, 64% fail within nine (9) months.
THE TOP REASON WHY LOAN MODIFICATIONS FAIL?
If I were to ask 100 consumers what their expectations are for a loan modification I can tell you EXACTLY what they would be:
**********REDUCE MY MONTHLY PAYMENT
**********REDUCE THE PRINCIPAL AMOUNT OWED ON MY MORTGAGE
That is what all your customers want. Will they get that? No. Oh they will get the lower payment, but not get a lower principal amount owed. That causes the lender to actually take a loss and they don’t want to do that. There are few, if any, principal reductions in loan modifications.
LENDERS DO NOT REDUCE THE DEBT AMOUNT OWED IN LOAN MODIFICATIONS
It may happen every once in a while, but generally no. Sellers out there really anticipate that it will happen and lose enthusiasm when they find that they are putting good money after bad. Why do that? They lose more enthusiasm when they DO call you and find out what their property is worth and how long it will be until they have some equity.
Happy Investing!
Today's guest blog courtesy of McFerran & Burns in Tacoma
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