11 May Loan Modification, It Does Happen
Workouts for borrowers with defaulted home loans are a reality. Unfortunately, it appears to be the small, specialized sub-prime loan servicers that understand the problem and have figured out how to best solve it. Large lenders have yet to establish procedures for handing defaulted loans quickly and efficiently without resorting to foreclosure.
In an article I wrote several months ago called Loan Modification, Fact or Fantasy, I questioned whether or not the concept of loan modification had any basis in fact or if the press conferences announcing voluntary loan modification programs were nothing more than a publicity stunt. While it is clear that the press conferences were useless, the concept makes sense. Why should a loan servicer foreclose a defaulted home loan and then try to sell it for less than the balance owed on an already glutted and declining market? Most borrowers want to keep their homes and can make payments. Many homeowners with defaulted loans are simply unable to meet the demands of aggressive subprime adjustable rate loans with ever increasing payment requirements.
Last December my article contrasted the processes available for one client with a troubled loan at industry giant, Countrywide Home Loans, and another client facing foreclosure of their home by Select Portfolio Servicing, a subprime loan specialty servicer. We struggled to work out a loan modification with Countrywide in a bankruptcy proceeding. Only the intervention of outside counsel for Countrywide and threatened adversary proceedings made headway with this giant lender. Select Portfolio Servicing, on the other hand, was ready to work out a mutually beneficial resolution for my client from the very first telephone call.
The clear winner on the default workout front is Select Portfolio Servicing. They maintain what appears to be two separate departments dedicated to default remediation and loan modification. These departments work with loans in bankruptcy and defaulted loans outside of bankruptcy. The group I worked with quickly arranged for a postponement of the pending foreclosure sale, intelligently analyzed my client’s financial situation, and proposed a solution that made sense to both borrower and lender. My client has resumed payments and the loan is no longer in default.
Select Portfolio Servicing has made an amazing transition from the old Fairbanks Capital Holding Corp. In its prior incarnation, the loan servicer was reproved by the bankruptcy court for its practices. At this point, Countrywide and many other lenders should look closely at the procedures Select Portfolio Servicing has adopted. Countrywide would be wise to follow the example set by this innovative company.
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