(page 3 of 4)
Part 3
For those in John and Suzie Smith’s position, success needs to be measured in terms of results. In addition to time and money, their adversary in this financial battle may well be the lender representative assigned as a “loss mitigation specialist” to deal with ‘their problem loan.’ Understanding what that specialist can and cannot do is an important element in determining what options are available. In other words, what sort of authority does that person, or the loan servicing company they work for, have to negotiate a workout? This is generally not an easy question to answer. In rare incidents when the loan servicing company actually owns the loan, we call that a portfolio loan. With their ownership comes the right to make just about any sort of workout deal.
But in the vast majority of situations, and in particular for those loans commonly referred to as being sub-prime, the loan servicing company serves more of a “collection agency” function. That is, they handle billings and collections. Each month you make your payments to them. When you fail to make payments they contact you to provide friendly reminders that they have not received your payment. Based upon the provisions of their loan servicing agreement with the owner of your loan, their authority may expand into other responsibilities that include initiating foreclosure, completing foreclosure, and negotiate workout arrangements on the loan owner’s behalf.
With the meltdown of the sub-prime loan industry and the rise in the number of foreclosures, governmental regulatory agencies have begun to take notice of the situation -- particularly as it may have a spill over effect and impact the economy as a whole. On September 4th, 2007 a joint “Statement on Loss Mitigation Strategies for Servicers of Residential Mortgages” was issued by the FDIC, Federal Reserve System, Office of Thrift Supervision, NCUA, and the Conference of State Bank Supervisors.7 The purpose of this statement was to encourage loan servicers, where their servicing agreements with a lender provided them with the specific ability to make decisions relative to working with borrowers, “to use the authority they have …, to take appropriate steps when an increased risk of default is identified, including:
- Pro-actively identifying borrowers at heightened risk of delinquency or default, such as those with impending interest rate resets;
- Contacting borrows to assess their ability to repay;
- Assessing whether there is a reasonable basis to conclude that default is ‘reasonably foreseeable’; and
- Exploring, where appropriate, a loss mitigation strategy that avoids foreclosure or other actions that result in a loss of homeownership.”
When borrowers contact their lender or loan servicing company, it may be beneficial to begin the conversation with an opening line that identifies your familiarity with this joint Statement. It will serve to help the lender’s representative in knowing that you understand the nature of their obligation and are willing to assist them in achieving the objectives outlined in the Statement. However, recognize that in the likely event that your loan is being handled by a loan servicing company, their ability to work with you towards a solution is limited by the powers they have in their agreement with the owner of your loan. Often times, with the way loans are bought and sold like baseball cards these days, the loan servicers may use as an excuse their inability to obtain permission by the loan’s owner to work towards a compromised solution. Sadly this may result in a "catch-22" situation where a workout arrangement will not be possible.
As much as possible, when dealing with the lender’s representative, let them know that you recognize they are “just doing their job,” which includes reaching the best possible solution for the lender they represent. State that you do not want to be placed in the position of making promises that you cannot keep. That means that you want to be careful in framing a solution that includes terms that can be actually accomplished. People who have been workout specialists for a while get pretty good at differentiating between realistic and unrealistic proposals. They are likely to tune you out early on in the negotiations phase if you suggest unrealistic approaches to resolving the situation.
A word of caution relative to contacting the loan servicer. You need to have accomplished additional steps that will be described in future articles. I can’t overstate the importance of understanding the foreclosure process in your State or knowing whether or not you continue to remain liable for the unpaid balance of the loan after foreclosure. These are things you must know before you begin to develop a negotiations strategy.
D.S.
© 2007
first | previous [ page 3 ] next
The syndication of third-party articles onto this site does not represent a gaurantee by IamFacingForeclosure.com of any article's contents or endorsement of the services provided by the author. All articles are provided for informational purposes only. You should consult with one or more appropriate professionals and use your own judgment before taking financial or legal action.