Loan modifications versus short sales as an option for distressed home owners

Even though a principal reduction is a viable solution for a homeowner struggling to make mortgage payments in a severely distressed property market, during the 1^st quarter of 2009, principal reductions only made up 2.8% of modifications according to The Comptroller of the Currency.

President Barack Obama's loan modification plan gives servicers all kinds of options for getting a borrower's debt-to-income ratio down to a 31 percent threshold:

• They can extend the terms of the loan, lower the interest rate, and even (if they are so inclined) trim the unpaid principal balance of the loan itself.
• But the administration has been criticized for not mandating that servicers write down the principal balance when they modify a loan, which, some argue, would improve the effectiveness of the program.

It is a well known fact that loan modification applications are on the rise, However, one of the direct results of the absence of principal reductions is a high default ratio for previously modified loans:

• In our experience, many distressed homeowners do not understand the loan modification process and eventually just walk away from their houses.
• This in turn leads to more costly foreclosures.
• Looking at short sales as a home retention strategy for distressed home owners, it is evident that a huge market exists for real estate investors.
• According to some statistics, 2.3 million homes will be foreclosed upon within the next 2.5 to 3 years.

For more information on the pros and the cons of loan modification and short sales, please submit your questions to us at the bottom of our HOME page and we will get back to you as soon as we can. We have achieved success in both loan modifications and short sales, and will be able to provide you with professional information, at no cost, so desperately needed by today's distressed home owner.