Countrywide Financial Corp handled billing and collections for almost 9 million loans at the end of August. The largest U.S. mortgage lender has provided one in five home loans this year. Countrywide has provided assistance on some 35,000 mortgages this year, including modifying terms on 17,000 loans. The federal government is strongly encouraging lenders to work with borrowers most effected by the ARM reset. To date fewer than 1% of the borrowers have had loan terms renegotiated by lenders.
The lender and loan servicing company may change the mortgage terms to make them more affordable to the borrower. Some strategies include repayment plans, postponement of payments, refinancing and modifications that bring loans out of default, the company said in a statement. Modifications of a loan may include lower interest rates and forgiving a portion of the principal.
There is some criticism from Wall Street Brokerages and rating companies of loan modification and forbearance programs. They are concerned that the value to investors in the mortgage-backed security would decline at the expense of higher rated tranches. They should be concerned about the inflated quality, inaccurate risk assessment, and rating system of the MBS.
Working with the borrower does not necessarily mean the house will not be foreclosed on in the future. It will depend on the value of the adjustment and the willingness and ability of the borrower to pay. In the meantime crunch the numbers to compare the cost of working with the buyer to the cost of foreclosure. Believe it or not, some of the homes at risk of being foreclosed are not $500,000 properties in California. Many homes are significantly lower priced. Attorney fees, court costs, and ongoing maintenance will be the same for a modestly priced house as a McMansion at 10 times the price. Sometimes it is necessary to leave the second bird in the bush to keep one in your hand.