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By William P. Matz President Masters Touch Mortgage Corp.
Options for Borrowers in Loan Distress
Consider 10 alternatives when helping to advise troubled homeowners
millions of homeowners in loan
distress are swamping mortgage brokers and other advisers, asking questions and pleading for solutions.
Unfortunately, urgency causes many
homeowners to make decisions before they’re aware of all their options.
The fact that few advisers, including
attorneys, have a broad-enough background to advise adequately about all
categories of borrower options compounds the problem.
There’s no substitute for competent,
professional advice that helps borrowers
make fully informed decisions, however.
In most cases, it’s best if a team of advisers collaborates to evaluate options
because one adviser is rarely capable of
considering all alternatives. Also, the tax
implications of each solution can be extensive and must be considered.
Loan distress typically takes one of
valuation distress, 1. which occurs
when borrowers owe more than
their home is worth.
payment distress, 2. which occurs
when payments become unmanageable, typically because of increasing
payments or financial woes such as
a job loss or health emergency.
Some borrowers experience both
types of distress at the same time. Mortgage brokers working with distressed
homeowners should ensure they have
a team competent of evaluating all options or limit their advice to those areas
in which they are competent.
Only with comprehensive advice can
distressed borrowers make fully informed decisions about their best course
Here are 10 primary solutions for distressed homeowners:
sale of the home. 1. This may be advisable when borrowers have equity
and payment distress and when no
alternative allows continued ownership. In tight markets, homeowners
may consider a lease option to an
otherwise-well-qualified buyer who
can’t close immediately.
refinancing. 2. When owners still have
some equity and sufficient, provable
income, this option can help relieve
reverse mortgages 3. and sales of op-
tions or future appreciation. These
represent good choices for some
homeowners ages 62 and older. Age
restrictions and equity requirements
exist. These programs can pay off all
or part of a mortgage and/or provide
loan modifications. 4. This option
received a boost from the U.S. De-
partment of the Treasury’s Home
Affordable Modification Program
(HAMP) and various changes to
state foreclosure laws. Trained bro-
kers may be able to help clients
make preliminary determinations
of HAMP eligibility. The program’s
lator can be found online at sctsm.
short refinances. 5. These differ from
loan modifications and occur when
continued on page 36 »
the existing lender writes down the
current loan to an amount that al-
lows a normal refinance. Removed
principal can be forgiven or con-
verted to an unsecured debt.
bankruptcy. 6. This represents the best
solution for some borrowers. A pro-
posed change to bankruptcy laws
would give judges authority to im-
pose loan modifications on primary
residences, something they can al-
ready do for rental-home loans.
short sales. 7. This well-known op-
tion involves selling a property
for less than the loans against it.
William P. Matz is president of Masters Touch
Mortgage Corp. and an attorney and broker.
He focuses his law practice on real estate,
finance and tax. Having also run an active
mortgage business since 1992, Matz has a
unique perspective on the mortgage crisis.
He practices in Windsor, Calif., and can be
reached at (707) 837-2161, ext. 121.
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