As home foreclosures begin to mount throughout the country, mortgage companies are becoming increasingly proactive by sending letters, making phone calls and in some cases even knocking on doors to let struggling homeowners know : They'd rather modify a loan than foreclose on the home.
According to an Associated Press article, EMC Mortgage Corp. , which has a $78 billion loan portfolio that includes subprime loans made to homeowners with weak credit, has announced this week that they have launched a 50-person team it calls “the Mod Squad. " Members will spend an unlimited time on the phone with struggling borrowers, working with them to help them sift through their bills in order to compute a workable monthly payment or what is known as a foreclosure workout. In an industry that often rewards workers for getting off the phone quickly, the team is preparing to speak to just three people a day in an attempt to find workable solutions for homeowners in default. The team members will be taking on the role of counselors as opposed to a typical customer service call center.
This loan counseling team called the Mod Squad is planning a six-city tour; it hopes to attract struggling homeowners to information and counseling sessions with offers of $100 gift cards to Home Depot Inc. The number is (877) 362-6631.
What many homeowners do not know is that lenders have long modified loans for homeowners facing involuntary job loss, illness, divorce or a death in the family. But with many borrowers across the country struggling to keep up with mortgage payments as interest rates on their loans adjust, mortgage companies increasingly are prodding anyone who's having trouble making payments for any reason to give them a call.
Many critics are weighing in saying lenders made loans to borrowers who weren't creditworthy with terms that would be impossible for them to meet. While others sit pointing fingers as to who is to blame for the problem, lenders are trying to find proactive solutions to reduce the percentage of loan portfolio's from going into default. Whether the current wave of workouts will merely postpone foreclosures — and delay bad loans hitting lenders’ books — is still an open question as there is not enough data available to see if these modifications will workout in the long-term.
New foreclosures hit their highest ever level in the fourth quarter of 2006, according to the Mortgage Bankers Association. Home owners are the obvious losers, but what many consumers do not realize is that all the financial services companies involved lose as well. “The lender loses the steady stream of payments it counted on. If it sold the loan as part of a securitization, a package of mortgage-backed securities, that investor loses. Loan servicers, who are usually paid a fraction of the interest on a loan, will lose too. ”
With home values falling in some real estate markets around the country, none of the finance companies want to be stuck owning a house that has depreciated, or, worse, a house surrounded by other homes in foreclosure. According to this article, EMC Mortgage Corp. says it loses, on average, 40 percent of the value of a loan in foreclosure and also has to carry holding costs such as taxes and other expenses on the property. They are highly motivated to reduce additional loans from ending up in foreclosure.
As stated earlier, it remains to be seen whether these financial workouts will actually prevent foreclosure or just delay the inevitable. But one must admit, it is heartening to see, even though it may be motivated by self-interest, that lenders are being a lot more proactive in assisting homeowners by helping them modify their loans and keep their homes.
Nef Cortez has been a licensed real estate broker and has held various positions in the real estate and mortgage industry for over 25 years. If you would like to read more of Nef's pithy and timely advice (with the latest info on local foreclosures), visit his website at Chino Hills CA Real Estate or read his blog at Southern California Real Estate Blog