WASHINGTON, DC – A federal court ruled last week that Countrywide, formerly the largest mortgage company but now owned by Bank of America, must now have their Mortgage Backed Securities (MBS) Investor's approval before issuing the terms of the loan modification to the borrower.
Previously, Countrywide, along with many other lenders, assumed that because of the recent foreclose prevention legislation (Obama's Home Rescue Plan), they could issue loan modifications at their own discretion on their own terms, without the approval of the owners of the loans (the Mortgage Backed Securities MBS Investors). This landmark ruling stops the current “no permission” practice and may completely kill the chances most current borrowers ever have in getting a loan modification in the future.
It is no secret that the Obama administration's mortgage modification program has not been successful. Even before this court case's verdict, loan modifications were all but a myth for most people who tried to get one. After spending thousands of dollars to attorneys to negotiate loan modifications on their behalf, most who applied for loan mods ended up frustrated, without a new set of loan terms and worse, very close to foreclosure. For those lucky few who were able to get a terrific arrangement, including a reduction in the principal balance as well as interest rate, congratulations to you because those days are over now that this court case ruled in favor of the MBS investors. Although loan modifications will always be around, for the vast majority of borrowers behind on their mortgage payments, this court case was the death of the loan modification.
Why is this important to short sale investors? When a borrower is behind on payments, they only have a few loan workout choices:
1.) Loan Modification – No longer an option for most people, as we just learned.
2.) Repayment Plan – When the person owes more than the house is worth, it's pretty much useless to arrange a repayment plan on the past due payments since the result is that they can catch up but they're still under water in the end.
3.) Deed-in-Lieu – Although this sounds good on paper, in the real world, it rarely comes to fruition. A Deed in Lieu is when the borrower gives the property back to the lender prior to the foreclosure auction. This appears on the credit much like a foreclosure so it doesn't help the borrower in anyway. Plus, anytime there is a first and a second mortgage, a deed in lieu is not an option. In fact, deed in lieu's are extremely rare and lenders almost never agree to them.
4.) Short Sale – Which brings us to the only option that most borrowers are going to have prior to a foreclosure, the short sale. This new court ruling is incredibly important to short sale investors because it all but eliminates the only other loan workout option that homeowners have gone to when they are behind on payments, the loan mod.
Now that short sales have become the only true loan workout option left, you may feel as if the recent short sale perfect storm is even more powerful than ever. It is…but wait, there's more! The Mortgage Bankers Association just released that 13.16% of all loans are either behind on payments or are in foreclosure, the highest percentage ever recorded in MBA history.
What's my point? If you are NOT doing short sales, what are you waiting for? If you are currently attempting short sales but are not successful, what is your problem? Two years ago it was a great time to be in short sales, last year it was an incredible time to be in short sales, now…it is the most unbelieveably perfect time to be in short sales in the history of this country. You owe it to yourself to take advantage of this incredible opportunity before it passes you by.