Daily Investment Tips

Loan modification enables distressed mortgage holders to reduce their principal and interest. But statistics show many American mortgage holders cant tap into the benefit of loan modification.

According to a Wall Street Journal piece on mortgages,

Most delinquent mortgages aren’t available for sale because they are locked up in so-called private-label securities (the ones packaged by Wall Street during the boom) or in the hands of Fannie Mae or Freddie Mac.

What this means is, Although a mortgage company has issued the loan, the loan is owned by third parties. The rules governing this arrangement prevent the issuer from modifying the loans. A modification would subject the servicing firm to the risk of lawsuits by the owners of the securities.

Because of this tight arrangement the mortgage companies find their hands tied and they cant help their borrowers.

written by Constantine Njeru \\ tags: American Mortgage, Boom, Borrowers, Delinquent Mortgages, Fannie Mae, Freddie Mac, Lawsuits, Loan Mortgage, Mortgage Companies, Mortgage Company, Mortgage Holders, Mortgage Loan Modification, Principal And Interest, Private Label, Qualify For Mortgage, Tap, Third Parties, Wall Street, Wall Street Journal, What This Means

If you own a residential mortgage and you are behind with your monthly payments you can consider a loan modification. A loan modification cuts payment it can either be the monthly interest or the principal.

Banks are reluctant to reduce the principal, because that would require them to recognize losses when reporting quarterly financial results. Their modifications policy is to reduce the interest rate or giving the borrower more time to pay.

One company that specializes in reducing the principal is Selene Residential Mortgage Fund. Selene Mortgage fund buys loans, mostly from banks, at steep discounts to the balance due. Once the company owns the loan it renegotiates the terms with borrower.

In a Wallstreet journal case study, a borrower who worked with Selene Mortgage Fund was able to drastically reduce the principal plus interest.

The balance due was cut to $243,182 from $421,731, and the interest rate was lowered. Those steps reduced the monthly payment to $1,573 from $3,464, allowing the family to stay in their home despite a drop in Mr. Reynolds’ income as a real-estate agent.

written by Constantine Njeru \\ tags: Case Study, Interest Rate, Losses, Mortgage Fund, Mortgage Loan Modification, Mortgage Loans, Mortgage Tips, Mr Reynolds, Principal Banks, Principal Mortgage, Principal Residential, Quarterly Financial Results, Real Estate Agent, Residential Mortgage, Steep Discounts, Wallstreet Journal