Save My House Tips

I started as a loan officer nearly 20 years ago. I have a deep understanding of the sub-prime meltdown and the subsequent foreclosures. Let me take a few minutes to explain the banking situation and why it’s so hard to get a loan modified.

After the 9/11 tragedy, the economy almost ground to a halt. In order to get people to buy big ticket items like houses and cars, the Federal Reserve Bank lowered interest rates to the lowest rates in 40 years. Many people refinanced their homes and used the money to upgrade to bigger homes that didn’t cost them any more because interest rates were so low. Real estate values went up but started getting too high. This caused bubble. Some folk reached a little too high and couldn’t make the payments. In fact, so many people lost their homes that market was suddenly full of foreclosures and the price of real estate fell, in some cases nearly 50%.

In many cases, it was not the fault of the borrowers. Many were duped into taking mortgages they didn’t understand. Some thought their payments were fixed but are actually increasing.

This is causing a downward spiral. As more people lose their homes, the values continue to fall. The banks carry these loans on their books at the value of the original loan. Banking rules say they must have assets to back the loans or the bank is considered over extended and should be shut down to protect the people who have their bank accounts there.  This is a big problem because the houses are now worth less than the loans. The banks look over extended if they have to re-appraise the homes that back the loans. Every time a house goes to foreclosure, the bank shows a loss and looks even weaker.

The government gave the banks money to modify these loans. The banks readily took the money but they didn’t use it the way Congress intended. Instead, they just kept it to make their balance sheets appear stronger. As real estate turns the corner and starts going up, the bank gets healthier and can afford to make new loans or modify existing loans. This is why it is taking so long. In the meantime, people are losing their homes because the real estate clock is ticking. Once a notice of default is processed, certain events happen automatically. This is why it is so important to start the loan modification process right away.

If you wait too long, you pass the point of no return and there is nothing that can stop the foreclosure.

Here are several tips that will help your chances of getting your loan modification approved.

Tip #1

Don’t expect the bank to cut the balance owed on the loan.

As long as the loan is being paid, they don’t have to revalue the house to its true value. Their goal is to work out some kind of payment arrangement without changing the value of the loan. Lowering the loan balance would weaken their balance sheets. They are less than motivated to do this. It does happen in extreme cases but most of the time, they just lower the payments hoping you will be able to return to full payments in the future. Your chances are better to change the loan terms than to change the actual loan amount.

Tip #2

Have a good excuse why you can’t make the payments

Regardless of how you got into the loan, you did sign the papers and agree to make the payments. You may have even signed an estimate of your monthly income on the loan application. You now have to show why you can’t make the monthly payments that you previously said you could afford. You promised to pay them back and put up the house as collateral, but the main thing is, you promised to pay them back.

Saying the home value has dropped and now is worth less than the loan…

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