Loan Modification Program in Redding, CA on Dec 15th

What is a Loan Modification Program and Who Is at Risk?

This is the “question of the day” as many homeowners are faced with some very difficult decisions. As a result of a number of financial issues, including sub-prime loans some two to three years ago, some homeowners are now dealing with increased adjustable rate mortgage payments, or a loss of a job by one of the wage-earners, or a change in their personal circumstances that is causing an unexpected move out of their home. What was thought to be a “good deal” a short time ago is now turning into a “nightmare” for some, and they are earnestly seeking ways to resolve their immediate situation. One option is a loan modification program that has been on the national news just these past weeks.

What is a Loan Modification Program (LMP)? This is a program that is designed to change the mortgage payment and terms agreement that the homeowner entered into when they took out the loan. How can you change a note, a contract, and an agreement that was agreed upon and signed by all parties, one may ask? Legally, the only way is to change the terms with all parties agreeing, and that is exactly what happens with a LMP.

What is the process? It starts with understanding how the original loan was made. In many cases in this area, a homeowner would go to a local lender, such as a bank, a mortgage broker, or a mortgage representative and get a loan. This loan application and approval was handled by the mortgage maker (bank, mortgage company, etc) and after the close of escrow, this loan was “sold” by this lender to a larger “investor”, such as Fannie Mae, Freddie Mac, or one of the many Wall Street money firms, such as Lehman Brothers. This parent group, if you will, then invested the money and all were happy. This process was fine as long as the value of the security (the home) would continue to keep or grow in value. What happened though, starting about four years ago, was that the housing industry on a nationwide scale, thanks to the unprecedented availability of money, starting building homes at an alarming rate, especially in the larger metro areas and suburbs around those areas. The result was a huge increase in the inventory of available homes, and then supply and demand set in. The supply grew faster than the demand, and prices started leveling and in some cases dropping and the result was the value of the home security was reduced. The investor got worried, and decided to sell the security, and this went on for awhile until the basic security dropped even lower in value, making the security harder to sell. Before long the investor had a bad investment. Our economy is based on moving dollars from one arena to another, and this process, in the housing industry, just stopped.

Compounding all of this was the adjustable rate mortgage, whereby mortgage payments start increasing after the first year of the loan. As the housing industry slowed down, so did all of the associated industries, such as lumber, flooring materials, plumbing, etc. With a slowdown, comes a loss of jobs, and the resulting income. Many two income earner families saw their incomes drop, but at the same time their mortgage payments were going up. Not a good situation. The immediate effect was that homeowners said, “we cannot afford this home, so let’s sell”. Due to the inventory and dropping prices, the homeowner is eventually faced with not making the payment and walks away from the home and all of the obligations that go with the home. The investor is left with an empty home that is losing value daily with no income at all coming from that investment. Not good. The rest is history, as it becomes a downward spin for all involved.

Instead of addressing this situation some two years ago, many lenders, driven by greed and not fully appreciating the magnitude of what was actually happening, refused to negotiate with the homeowner in an effort to “save the deal”. The result was the highest percentage of mortgage foreclosures in our history, and it is still going on. And, here comes the federal government to the rescue, just way too late. The problem is now of huge proportions, for national housing investments have continued to plummet and many of the investor’s securities are almost worthless. After trying to bail out Wall Street, the government decided to try and help the homeowner, and brings up Loan Modification Programs. Again, too late to help such a huge problem, but at least an attempt. The problem is, how does the government decide who to help and how much help to provide, and this is where the federal program will bog down.

A few years ago, some foresighted financial folks saw what was happening and decided to address the issue head on, and we saw an increase in the number of debt resolution companies, initially directed toward credit card debt. Some decided, as the housing market declined, to address the mortgage loan issue, and that is where we are today. On Monday night, December 15, 2008, at 6:30 PM, at the Redding Main Library, we will be conducting a second Mortgage Loan Modification Seminar for all that are at risk or are thinking that they might be at risk in the near future. This is an information dissemination seminar and the various options will be explained by the Largent Team at Keller Williams Realty who will be joined by a national debt resolution firm that has a 97% success rate with loan modification programs. The process outlined above will be explained in more detail, questions will be answered, and hopefully options will be offered that can help homeowners as they deal with the possibility of “losing their homes”. Reservations can be made for the free seminar by calling 248-5699 (Kim).