ModPilot – Why do Lenders Consider Loan Modifications
ModPilot fields questions from consumers each day about how to try and save money on their mortgages. Some of these questions happen more often than others, but one the most common question from consumers is “why would a lender do a loan modification?”
Though it seems somewhat counterintuitive, providing a borrower a long term loan modification can actually be a path a lender and servicer can take to increase their long term profit, and probability of profit, on an underperforming mortgage asset. To understand this dynamic, a basic understand of the servicer-investor relationship is needed.
Generally speaking, the servicer is the bank or institution that borrowers pay each month for their mortgage. The servicer, who is hired by the investor to deal with the month to month issues on the mortgage, then turns that payment over to the investor while withholding a portion for their fee. Given that knowledge, it becomes clearer why both a servicer and investor might find a modification attractive.
If the mortgage is unaffordable to a borrower, it is likely that the borrower will become delinquent and not pay their obligation. When this occurs, neither the investor nor the servicer receives monthly income. A loan modification, especially where it makes the loan more affordable over the long term, may decrease the monthly income on the loan, but it increases the probability that the mortgage asset will perform for years to come. This is an attractive proposition to both the servicer and investor.
Layered on top of this is the fact that a modification may allow for the investor or lending institution to keep the mortgage asset valued at the same level on their balance sheet. In many modification situations, the real property that secures the mortgage asset has lost a substantial portion of its value. If the real property is sold at foreclosure auction, the lending institution will have to reflect that lowered value on their balance sheet. However, in the modification, they are much more likely to be able to hold on to the initial value of the mortgage note. This is another advantage that investors look at when determining the outcome of a modification request.
Working with ModPilot, you can use these two reasons to your advantage, sending in your own modification request in a way that maximizes your potential for a modification.