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Loan Modification in Orange County, CA: A Guide

Home values in Orange County, Calif., have declined radically over the past several years, placing many homeowners in an awful situation: their monthly loan payment is too high and selling the home is not the answer because its value is less than the mortgage.
 
If you’re in this situation, you may have considered loan modification. While loan mod is a good option for some homeowners, a short sale is often the best way to reduce debt and increase personal net worth. Home Sales and Loan Modification in Orange County, CAHome Sales and Loan Modification in Orange County, CA
In this guide, I’ll describe loan mod in Orange County, debunk some widespread myths and help you decide if short sale is the better choice for you. 

What is Loan Mod?

A loan mod is a restructuring of the terms of the note, which can include reducing the loan’s interest rate or extending the term (number of payments) in an attempt reduce the homeowner’s monthly payments.  
Most Orange County lenders are willing to extend the loan to 40 years; however, most interest rate cuts are only temporary. Lenders know that the economy will eventually improve, permitting them to bring the payments up to the previously higher rate.

Myths and Realities of Loan Modification in Orange County, Calif.

There are numerous myths about loan mod. In this section, I’ll expose three of the most common myths. 
  • Myth: Payments are reduced with a loan mod.
  • Reality: In a significant percentage of California loan mod cases, payments go up due to the addition of built up penalties, fees and interest on missed payments. To make the restructured loan payments appear valuable, lenders are extending the loan term to 40 years and sometimes offering slight reductions in the interest rate for two to five years. Nevertheless, in more than one third of cases, loan mod payments increase after the loan modification, according to the Fitch Bank Rating Agency.
  • Myth: Loan mod will allow forgiveness of accrued penalties, fees and interest on any missed payments. 
  • Reality: Lenders are adding the accrued penalties, fees and interest from the missed payments to the loan balance. 
  • Myth: The principal balance goes down in a loan mod.
  • Reality: Principal balance reductions happen very rarely. These reductions are most likely to take place when complex legal or financial matters are being negotiated or litigated with the lender. 
Due to the realities of loan mod, short sale is often the right option for Orange County homeowners looking to rid themselves of debt and gain personal net worth.

Quick Tip

Loan mod is different than a forbearance agreement. In forbearance agreements, the back payments owed are restructured without changing the original terms and conditions of the loan. Because the back payments are being paid off over time, payments will increase with forbearance agreements.  

How to Pursue a Loan Mod in Orange County, CA

The most common tactics for pursuing a loan mod in Orange County include:
  1. Applying directly with the lender. Because most homeowners aren’t able to negotiate sizeable reductions to the interest rate and debt, this is the method most preferred by the lender.
  2. Working with an Orange County loan mod company. These companies are usually attorney- or real estate broker-owned, highly skilled and can have success in taking on legal issues in order to obtain good interest rates and debt reductions. Though it should be noted that the success rate in this industry is not acceptable overall for the majority of homeowners.
  3. Working with a trained California short sale investor or negotiator. While this may sound peculiar or contradictory, this is actually a very smart strategy, especially if affordability is important. Because lenders often conclude that a short sale produces greater losses than loan mod, the mere possibility that a homeowner is calling it quits may cause them to make their top and final loan mod offer. This strategy can be used to begin with, but is most often used when the borrower is fully extended financially and unable to get a reasonable loan mod. 

Loan Modification Eligibility

In Orange County, CA, there are no eligibility requirements for obtaining a loan mod, though the lender and borrower reach an agreement on the loan changes.
 
There are some circumstances in which an Orange County lender will be financially motivated to approve a loan mod and others in which the lender is less likely to grant approval.
 
In general, loan mod approval is more likely when:
  1. The approval of a permanent loan mod is a necessity to make the non-performing loan a permanently performing loan yet again.
  2. The homeowner has a difficulty that has been resolved or is resolvable in the near future.
A “trial” loan mod can be obtained in nearly all cases. To partake in a trial loan mod in Orange County, lenders generally ask the borrower to make monthly payments at a set amount for a minimum of three months prior to granting permanent approval. Unfortunately, this creates a trap for many borrowers, as the lender might never give permanent approval of the loan mod.  
 
Loan mod is likely not to be approved when:
  1. The lender determines that the borrower might continue to make the loan payments whether or not the lender provides permanent approval. For example, if the lender believes that borrower will do whatever it takes to keep the house, there is little incentive to provide permanent approval.
  2. The lender concludes that the borrower cannot afford the home.
  3. The lender doesn’t believe that a borrower's hardship will be solved by loan mod.

Most Loan Modifications are Destined to Fail

In general, most loan modification payments are 64% of pre-tax income, according to the Fitch Bank Rating Agency, though lenders generally will not approve a new loan if the payments exceed 35% of pre-tax income. The reasoning behind this is that in order for a loan to be successful and to avoid becoming a non-performing loan, borrowers must dedicate a reasonable portion of their earnings for other household costs.
 
Because of this very high payment requirement, loan modification is an impracticable program destined to fail, according to Fitch and others. In its assessment, Fitch has criticized the banks’ handling of loan modifications, due to the low approval rate of permanent loan modifications and high rate of failure after permanent approval is provided.
 
Disappointingly, federal and state laws and government regulations have been unable to force banks to assist homeowners in preventing foreclosure, due to their powerlessness to pressure banks into taking on more of the monetary losses that are occurring as a result of the housing crisis.

Is Loan Modification Right for You?

Because of the substantial drop in housing values, loan modifications are not recommended for the large majority of Orange County homeowners. If you are looking to reduce your debts and expenses, a short sale can dramatically lower your debt and boost personal net worth at the same time.
 
Plus, if you desire a loan modification in Orange County, CA, yet have little or no equity, a short sale can be used as a tactic to entice your bank to make a reasonable loan modification offer.
 
For more information on California loan modification and short sale, download my free e-book, “Loan Mods, Why Short Sale May Be A Better Option For You,” or give me a call at 1-888-REHelp9.

Reader Comments (1)

If you have questions in regards to your servicers standing to foreclose, then the best option is to hire a CERTIFIED mortgage Securitization Auditor. This person will find;
who own the note
who has the power to foreclose
Track a broken chain of title in the transferring of the loan through the recorded instruments
Looks for forgery and fraud, robosigners and violations under SB 900 for more info feel free to contact me

Thanks Cece

December 26, 2013 | Unregistered CommenterCece Moreno

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