By Shel House
President
MLS Mortgage Group
Distressed Borrowers e d B
Have Options ve n
Loan mods, short sales and credit repair
could be in the cards for your clients
The current real estate market, flooded with distressed proper- ties, has left many homeowners
in a difficult situation. Foreclosures
and short sales have forced down
home prices, effectively forcing many
potential sellers to wait out the downturn. In many cases, this occurs despite imminent adjustments to current
homeowners’ ARMs or recent job loss.
Fortunately, options exist for these
distressed homeowners. By providing them with a resolution, mortgage
brokers can stick in borrowers’ minds
as valuable resources and trusted
advisers.
What many borrowers need most
are loan modifications, short-sales ne-
gotiations or credit repair. Whether you
decide to become a consultant for any
of these services or refer them to other
professionals, it’s a good idea to have
a basic understanding of each.
Loan modification
Despite low interest rates, many homeowners can’t refinance into a fixed-rate
or lower-rate loan. Job loss and lack of
home equity represent two of the main
reasons this occurs.
Loan modifications offer borrowers an
option to reduce their payment by lowering the interest rate, lowering the principal balance or extending the loan term.
Many lenders, however, aren’t eager
to act without negotiating. Brokers can
facilitate modifications by communicating borrowers’ hardships, including:
Payment shock because of an ARM •
adjustment;
Reduced income; •
Job relocation; •
Job loss; •
A failed business; •
Divorce or separation; •
Medical expenses; •
Illness; •
A death; •
Property damage; • and
Military duty. •
Before any negotiation begins, homeowners should determine changes that
would remedy their situation or better
support their budget. In addition to the
aforementioned options, lenders also
can remove balloon payments and offer a period of interest-only payments.
If after reviewing their options, clients see no option for staying in their
home, they can begin to consider a
short sale.
Debt Relief Act l f t
The Mortgage Forgiveness Debt
Relief Act of 2007 applies to forgiven debt resulting from home-price declines or taxpayer financial
hardships. To qualify, debt must be
discharged by the end of 2012.
For more information, visit the Internal Revenue Service’s information page:
sctsm.in/MDRA2007
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help. We are the bank. We are the decision maker.
help you and your company close more loans.
ess your loan.
Credit repair
For more than the past five years, studies have shown that a number of credit
reports contain serious inaccuracies
that can lead to loan denials.
Some government Web sites suggest
that self-help may be the best option for
credit repair. But many people don’t understand how credit-scoring works and
lack the diligence required to research
and remedy their own problems.
Credit education represents the first
step toward credit repair. Brokers can
help their borrowers understand the
following five factors and the impact
they have on their credit scores:
Payment history: • Negative factors
include late payments, repossessions, foreclosures, tax liens and
bankruptcies.
Amounts owed: • The smaller a borrowers’ limit-to-balance ratio on
open-ended credit such as credit
cards and lines of credit the better.
Overall debt includes all outstanding
installment loans, as well.
Length of credit history: • The longer the better. History shorter than
two years likely will have a negative
impact.
Type of credit: • Those receiving high
credit scores typically have a mortgage, a car loan and two to three major credit cards.
Inquires: •
A lender’s request for a
borrower’s credit — or a hard inquiry
— can negatively affect the consumer’s credit for as long as a year. Self-checks don’t have the same impact.
Many credit-repair companies offer
simulators that allow the insertion of
plausible extra discretionary money to
see how a consumer’s score could potentially increase.
Brokers should take the time to help
distressed homeowners understand all
their options and work to help them realize the best solution. •
os at We ApproveLoans.com L a s o or call 877-353-2233 .
Short-sale negotiation
Short sales occur when lenders agree to
accept less than what homeowners owe
on a mortgage. Unless a short sale is
negotiated ahead of time, many buyers
will opt for a foreclosure purchase versus a short-sale purchase a lender may
never allow. But according to the Office
of Thrift Supervision, new short sales
increased 96.8 percent between the
fourth quarter of 2008 and the fourth
quarter of 2009.
In many cases, short sales represent a good compromise for all parties
involved. Homeowners can sell their
home and minimize damage to their
credit, and lenders can avoid the expense of foreclosure proceedings.
Lenders have different requirements
for short sales. Many require a hardship letter and much of the same documentation collected during standard
mortgage origination.
These sales typically take many
months to close. They’re more complicated when more than one lien exists
on a property.
All lien-holders must be involved in
the negotiation, and brokers must be
patient and fulfill all lender requests
quickly and clearly. Brokers who develop an expertise in short-sale negotiation often find themselves in high
demand and can rapidly develop a
long list of referrals.
Prior to the Mortgage Forgiveness
Debt Relief Act of 2007, the difference between the outstanding payoff
balance and the sales price could be
considered taxable income. That tax
burden, however, has been waived
through 2012 for forgiven debt of as
much as $2 million (see sidebar).
When dealing with tax issues, brokers should refer clients to a licensed
tax professional.
Brokers also should advise clients
that short sales will impact their credit
and future borrowing. In many cases,
clients can’t purchase another home
for as long as three years. This can lead
to a discussion about credit repair.
Shel House, president of MLS Mortgage
Group, expanded her company’s service-offer-ings to help clientele during times of distress.
If you would like to help distressed homeowners and receive revenue for doing so, e-mail
House at HomeownerHelp@MLSMortgage
Group.com or call (612) 789-5626. House is
a member of a referral net work designed to
increase business through additional service-offerings and marketing platforms.
