Historically when mortgage companies have reduced monthly payments in loan modifications to help people facing foreclosure save their homes, they have done it by either reducing the interest rate or extending the remaining period of time over which the mortgage was to be repaid. Several times congress has sought to change the law and give judges in bankruptcy cases the power to reduce the outstanding principal balance on mortgage. By doing that the mortgage company would have to lower the monthly payment.
The mortgage companies have fiercely resisted this. The industry’s lobbyists in Washington have been so powerful that they have been able to get congress to defeat this change any time it has been proposed.
Principal Balances Reduced on 10% of Loans Modified
So it was surprising to see in the Mortgage Metrics report released by the government in September that in the second quarter of 2009 the mortgage companies reduced the principal balances on 10% of the loans they modified. The Wall Street Journal picked up and reported this in an article in early October. What the Wall Street Journal failed to realize and report was
Where The Principal Balances Were Reduced.
A closer look at the report revealed that the mortgage companies lowered the principal balances on 30.5% of the mortgages modified that were in their own Portfolio. These were mortgages where they put up the money out of their own funds. These were not mortgages that they sold to other investors and were still servicing. On the loans that they sold to other investors and that the mortgage companies modified they did not reduce the principal balance on any.
From my outsider’s observer’s perspective it looks like the mortgage companies reduced the principal on these mortgages to try to make sure that they would reduce the number of foreclosures on loans in their own Portfolio. They didn’t care about the mortgages that they had sold to other investors.
What Does This Mean For You?
If you are facing foreclosure and have applied for a loan modification, your mortgage company may lower the principal balance on your mortgage to lower your monthly payment if they have kept your loan in their own Portfolio. How can you tell if yours is in their Portfolio? The only way would be by calling them? If your loan was sold to Fannie Mae or Freddie Mac or if you have an FHA or VA loan, it would not be in their Portfolio.
If you have a lawyer or expert in loan modifications helping you, they can find out who the investor on your loan is. If in a loan modification that your mortgage company offers you, you find that they are lowering your principal balance, consider yourself fortunate. You are one of the very few who has gotten this concession.
Remember – you should take control of the process to get a loan modification. If you hire a lawyer or an expert in loan modification to represent you, they are working for you. You should strive to know as much about the process or more. My EBook has much information which you might find useful. You can find out more about it by clicking Stop Foreclosure.
Much Success,
Mark Elkins
