WORK OUTS AND LOAN MODIFICATION

The new biggie in real estate is loan "Work outs" and "Modifications." The Federal Reserve Chairman, Ben Bernanke, stated publicly last week for banks to be more aggressive with these tools. It spooked the market that he publicly stated banks need to consider lowering the loan amount in places where the value of a home has dropped below what is owed on the mortgage. It spooked the market because the market is already having a difficult time value the mortgage backed securities with all the foreclosures. If they start lowering the amount owed on the good notes, what are they worth????

So, let's get back to loan WORK OUTS. What are they. Work outs are when a buyer is running into trouble and may look at a short sale or a foreclosure. Technically, before selling or walking away form the home the borrower should be talking with the mortgage company. Finding out if there is anything they can "work out" before walking away or selling short. Work outs can be many different things such as:

lowering the loan amount
forgiving past due payments
lowering the interest rate
extending a date for a loan adjustment
extending the date for a foreclosure on the home

When it comes to LOAN MODIFICATIONS we usually see a different story. This is a case where the lender wants to keep a borrower comfortable in their home and not drive them to thinking of not paying the mortgage, short sale or foreclosure. You should all call your bank and talk about a loan modification. Loan modifications include the similar adjustments:

Lowering loan amount
Lowering an interest rate
Extending the time frame to a rate adjustment

These are all good actions for the borrower. Call today and ask for the loan modification department. You may be able to lower your rate, lower your loan amount or extend the time to your next adjustment.