Your lender can help you keep your home.Loan Modification and repayment plans are being established in a number of financial institutions. For example, Bank of America who recently acquired Countrywide Financial, indicated that they will perform loan modifications on an estimated 400 000 home loans a part of an 8.4 billion legal settlement that occurred in early October.
Chase financial expanded its loan modification program to an estimated $70 billion in loans. Perhaps, the biggest relief came with the introduction of the Housing and Economic Recovery Act of 2008. What does this act mean for borrowers who are at threat of losing their homes? How will the Housing Recovery and Economic Recovery Act help struggling homeowners keep their homes? An estimated 400,000 borrowers in danger of losing their homes will be able to refinance into more affordable government insured mortgages.
What is the incentive for lenders to participate in this program? The government will provide insurance to lenders who voluntarily reduce mortgages to 90% of the current property value for people who are struggling to keep their home and are at risk of losing it. Lenders must be prepared to have big losses if they want to participate. Reducing a mortgage to 90% of the property value, which is likely much less than the principal balance of the loan means an automatic loss to lender.
In addition, lenders must be prepared to forgive any penalties or fees, and assist in the payment of the starting and closing cost of the new loan. In general, lenders must be prepared to lose a minimum of 10% on the original loan, and chances are that the losses will generally be more. One would ask why lenders would want to participate in such a program. However, the truth is that lenders are also experiencing financial difficulty and the truth is they lose more money to foreclosure than they do to loan modifications.
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