Why Don’t Mortgage Companies Rework Payments?

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Instead of foreclosing on all of those sub-prime loans, why don’t mortgage companies just refinance the sub-prime loans into fixed-rate mortgages and keep money coming in, instead of losing it?
You know, I really don’t care if it’s the banks fault for issuing mortgages they knew the borrowers couldn’t afford, or the borrower’s fault for taking out mortgages they knew they couldn’t pay. All I am asking is, doesn’t it make more sense for the Economy to work out terms that allow the borrowers to still make payments, rather than the banks losing all of that money, and the borrowers losing their homes?

  1. Reply
    May 4, 2011 at 2:49 am

    Many of them are doing just that. The key is the home owner has to ask and explain why they are having financial problems.

  2. Reply
    Mary B
    May 4, 2011 at 2:54 am

    Because they simply, don’t lose money on all foreclosures.

    Attorney’s don’t give advice for free.

    Doctor’s don’t perform exams for free.

    Banks don’t refinance for free.

    That is how they make money.

    The only time a bank is willing to “rework” mortgages is usually for extremely high end borrowers (million-dollar plus) or an investor with multiple properties that would stand to lose them all if something isn’t done.

    But for Joe-Blow down the street? Nope, they’ll foreclose on him.

  3. Reply
    May 4, 2011 at 3:14 am

    There are many answers to your question. First is that many times a bank will not lose money when forclosing on a home. They get to sell the house (usually at near market value) and they also get to write off all the attorney fees and any paper loss they get for the property. Almost a get their cake and eat it too scenario. Write the bad debt off on the taxes and sell the property for near market rate. Seems like a win-win for the bank.

    Second part is that to qualify for a mortgage you need to have good credit. Many time borrowers do not contact their bank when the first realize they can’t make the payments. they fall a few payments behind. At this point their credit has taken a nosedive. Now you are asking the bank to lower their credit standards to allow a refinance of the mortgage. You are asking this at a time when they are realizing that they are losing money hand over foot because they lowered their credit requirements in the past.

    The next part is that if you lower the credit requirements for those to refinance their loans, you will also need to lower it for those who want to take out new loans. You have to treat everyone equally. Now you are opening the market up to making bad loans to those people who have bad credit. That is what started this mess in the first place. Doing this will just perpetuate the problem.

    Lastly, you open the whole thing up to fraud. If people know all you need to do is miss a few payments to get better terms from the bank you will have everyone miss a few payments (even those who can afford to pay the mortgage) so that they all get better rates. This really solves nothing.

  4. Reply
    ibu guru
    May 4, 2011 at 4:02 am

    1. Most mortgage companies resell the loans in bundles to investors. They have no right, no authority to re-write the loan since they no longer hold the paper. To refinance (unless you are dealing with a bank which owns and services its own loans – very rare!), you must write a new mortgage big enough to pay off the old mortgage plus the costs of writing a new mortgage. For someone who cannot pay the current mortgage, how can they repay a bigger mortgage?

    2. If you can get your mortgage holder to work something out with you, it will be for a short period of time so you can get caught up. If you do not meet the agreement, it’s automatic foreclosure. The lender’s leeway to work with you is limited.

    3. With home sales declining, your home might not at the present time be worth as much as when you bought it or as much as you still owe. It is, generally speaking, illegal to write a mortgage for more than the property is worth. (There are rare circumstances for writing a higher mortgage, usually for a property being renovated or expanded so that it will soon be worth more than the amount of the mortgage.)

  5. Reply
    May 4, 2011 at 4:30 am

    Don’t listen to any of these f u ckin idiots like the one posting about me as a “Realtor”

  6. Reply
    May 4, 2011 at 4:58 am

    A lot of those loans have been packaged up into those awful CDOs and sold to investors as bonds. They are off the books of the original lender.

    The loan servicing companies, which don’t own such loans, don’t have the authority to change individual loan terms without the new load owners’ permission unless THEY want to eat the “lost” income. A difficult situation.

  7. Reply
    Rush is a band
    May 4, 2011 at 5:13 am

    In addition to the answers you have already gotten (which are pretty good) you have to consider the following:

    How would you re-work either an interest only or a negative amortization loan? The interest only already has an infinite repayment term. There is nothing that will make that payment more affordable. The bank has no choice. Same goes with the negative amortization, except the payment will increase every month for an infinite period. Again, no choice, stop the bleeding and be done with it.

    good luck!

    The answer about not holding the paper and not being able to change terms is the best one (besides this one, of course 🙂

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