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The lenders have received numerous requests for loan modifications.

But many borrowers don’t qualify, for various reasons:

1. Too far underwater.

2. Lousy financial package (make too much $$, make too little $$, incomplete pkg., etc.).

3. Not primary residence.

4. Not a qualified loan program (not Fannie/Freddie, etc.).

The lenders/servicers are having to review each package, order appraisals, and make a decision.

If the borrower is denied, they are faced with either keeping their word and making their existing payments, or throwing in the towel.  The second choice means ride out the free rent while getting foreclosed, or try for a short sale. 

Both options will be costly to the lender.

The lenders have the loan mod package in front of them.  If denied, should they just go ahead and pre-approve the short sale?

On one hand, if they were proactive and offered a pre-approved short sale, they could efficiently resolve the case. 

If part of the package included a demand that the seller had to vacate, the short sales could compete with REOs – right now the REOs are pummeling the short sales in selling efficiency. 

Selling these homes faster and easier should mean more net proceeds to the sellers.

On the other hand, wouldn’t more borrowers take advantage of the system?

I think there are lenders out there that are contemplating this very question.

What should they do?

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