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Stop Foreclosures Before They Happen by Helping to Cure the Loan in Default

Home buyers in today’s market will be aware that there may be opportunities to purchase from sellers in financial distress, at a price below market value, and in so doing stop foreclosures. They may hear of these opportunities from friends, the realtor, with whom they may already be in contact, or just by being observant, reading newspaper columns, noting for sale signage, all indicators that a seller is impatient.

In the reinstatement period following default many homeowners do not know where to turn for help, but do know that if only they can sell their home quickly, they have enough cash to move. Chances are they aren’t as fully informed as they should be about their rights and remedies; they may caste the lender in an antagonistic role, they may have tried to refinance with other lenders and failed.

With the help of a realtor experienced in the particular issues of foreclosure properties, a buyer intent on stretching his cash and pre-approved financing just as far he can, will be able to determine the right price to pay for this particular piece of real estate.

Together or separately you must find a way to win the owners’ trust, understand what has led to the default, determine that there is indeed a way to structure your offer and close a sale without delay in which everyone, seller, lender and buyer, gain a quantifiable benefit.

Buying in the pre foreclosure period requires a source of great leads, an ability to get there first, and a way of showing the owner the options that appeal to him. Prepare for an all cash buyout if you can’t assume the loan, prepare to ease out if you learn that at the end of the day, the discount gained doesn’t warrant the risk of being wrong about the cost of the repairs you deem essential. Many investors may smell a “short sale” opportunity, and negotiate through the owner/borrower with the lender with an offer less than the recorded debt in default. This approach is not for the novice, and does not “cure” although it may result in the debt being totally extinguished. With other home owners near or in default now in many states, with little equity and facing both stagnant house prices and tighter restrictions on borrowing, you can be sure another property will soon meet your needs and those of the owner who is desperate to cure the default.

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Large Banks Are Helping Homeowners Stop Foreclosure

JP Morgan Chase & Co. back in November stated it is widening its effort to modify home loans in an attempt to limit foreclosures by up to billion in mortgages.

The loan-modification program will also be provided to borrowers who have loans with Washington Mutual and EMC. JP Morgan purchased Washington Mutual in October after the bank became the largest in the country’s history to fail. JP Morgan also bought EMC, which was a mortgage unit of Bear Stearns.

As JP Morgan acquired these two giant lenders, it also received mortgages that included adjustable-rate mortgages with minimum payment options. Option ARMs give borrowers a choice of four payment options every month, like paying less than the interest owed on the loan, thus raising the principal loan balance. JP Morgan claims modifications for Option ARMs would erase the paying less than the interest owed feature and the monthly options. Borrowers will more than likely be offered a fixed rate mortgage.

Option ARMs have been among the worst performing loans dating back to the summer of 2007 as mortgage defaults have surged and the real estate market has accelerated in the wrong direction. Hence the statement from JP Morgan officials, \”We are doing this because we think it\’s the right thing to do.\”

I also agree it needs to stop as some things cannot just be let to run its course or the damage will be insurmountable. The program helps homeowners who live in their homes and who \”demonstrate the ability and wanting to pay”.  They have also gone so far to say they will modify mortgages with borrowers who are current on their mortgage payments.

They will typically modify the loan to more conservative standards like making it work on a 28/36 debt to income ratio basis. In the past few years lenders were approving loans with up to 60% debt ratios which is absurd.  Moving back a decade and beyond, the system worked right and foreclosures or borrowers becoming late were not as rampant.

Additional big banks are following the steps of JP Morgan by offering loan modifications to their customers such as Bank of America which acquired Countrywide and even Wells Fargo which has less risky customers due to their more conservative underwriting approach. Even if borrowers do not have a home loan with large banks they can still be approved for a loan modification program by a company that specializes in debt restructuring and loan modifications.

In addition, when some banks leave the client in the dust by not approving a loan modification or the modification is only for 3 or 5 years, they have other options to rid themselves of a home they cannot afford such as a short sale or a short refinance. Banks need to help homeowners stop foreclosure in order to halt the financial crisis. Many people understand this. Who will make legislation to make this a reality instead of talk while homeowners fall deeper behind.