Equity Now Presentation

Loan Modification Presentation

What are loan modifications?
How do they work?
Why would banks be willing to do them?

What is a loan modification?
Modification of any term in an existing note
Interest rate
Term length
Principal reduction*
* 1.3% of loan modifications done between January 08 through May 08 resulted in a principal reduction. NY Times 07/23/2008

Wall Street Journal December 22, 2008
Of the loans that were modified in the 1 st quarter of 2008.
37% were 30 days late after 3 months.
+50% were 30 days late after 6 months.
WHY?
No equity position.
Home values continued to slide.

So how do they work?
Example Mortgage Term Prior to Modification
Current mortgage $250,000.
30 year fixed rate mortgage.
6.5% interest rate
Payment is $1,580.17
Plus taxes and insurance.

Example Post Modification Terms
Current mortgage $250,000.
40 year fixed rate mortgage
4.5%interest rate
Payment is $1,123.91
Plus taxes and insurance.
Savings of $456.79 per month

Why are banks be willing to do this?
Banks want to avoid foreclosure – bad publicity
On average the foreclosure to sale process takes 18 months
Foreclosures are expensive
Bank foreclosure sales receive on average 82% of current market value

Banks view their mortgage securities as a pipeline.

Impact of Poor Performing Notes
Performing Notes for banks
$1 in reserves supports $100 in loans
Non-Performing Notes for banks
$24 in reserves supports same $100 in loans
Poor Performing notes create huge reserve issues for lenders and prove toxic to balance sheets – Banks must immediately fund the additional reserve requirement or lose their risk losing their federal banking charter

Loan Modification
This does work. Currently the DRE has listed 12 companies that they have “approved” to take up front fee’s.
There are many many more of them out there.
In the past we work with a couple of them. They charge between $2,500 and $5,000.

There is a better way
Note purchase – Third party purchases your existing note from the bank.
Prior to purchase the third party complete a forensic audit on your note.
Complete Review of Truth in Lending Disclosures
Audit for HUD compliance
Document case against lender to create strong negotiating position

So how do they do that?

Investor then approaches the bank
Buying power when combined with audit documentation results in discounted purchase price from existing bank
Portion of discounted price provided to homeowner in the form of immediate equity

Example Results for Borrower? The house is underwater here $100,000.00 The bank realizes a $300,000.00 loss. And receives replenishing capitol via government TARP program. Note $500,000.00 House $400,000.00 Value Note Purchase $200,000.00 @ .50% of Current Value

Investor Financed New Loan The home owner relieved of $200,000 in debt. The investor creates a new note at 75% of current market value. $400,000 (Current Value)‏ @ 75% LTV = $300,000 (new loan amount)‏ New loan has $100,000 in homeowner equity Homeowner's positive position encourages continuing payment

Next Step
Complete Loan Application –
Credit does matter
Complete Contract – written guarantee
Complete Statement of Information
Foreclosure process is halted until pool reaches $40 million
Principle Reduction Guaranteed or Fee is returned

Equity Now Presentation

by diamondhye on May 29, 2009

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Equity Now Presentation — Presentation Transcript