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Offering loan modifications will be more beneficial than completing a full foreclosure process for lenders for several reasons. One primary reason is the loan modification option can many times create a win/win situation for both the lender and the borrower. This situation can be created by rolling any late fees, past due balances, and or outstanding principal and interest owed back in to the modified loan, thus reducing lost revenue for the lender and creating a manageable repayment structure for the borrower. Second, by stretching the loan out over an extended period, it ensures that the borrower is able to make the monthly payment and the increased time of the loan equals more revenue for the lender in terms of future unpaid interest due. Additionally, the recent induction of government incentives and assistance for both lenders and borrowers has made loan modifications a much more beneficial and obtainable opportunity for both parties. A loan modification, rather than a foreclosure, will always be a more fiscally attractive option for a lender. While many homes are foreclosed upon each day, the bank will always lose money exercising this option due to legal and processing fees, remodeling cost, and the below market value sale of the house. These losses have been amplified due to the current economic conditions and decreased resale market for the foreclosed homes. Another benefit is that a loan modification will help to protect the credit score of the borrower. This protection will benefit the lenders portfolio by increasing the financial standing of their customers. This increase will have the result of helping lenders maintain investors by increasing the number of high quality borrowers. Bottom line, the most important point of contention when lenders are considering approving a loan modification is that it must make sense for them fiscally. In other words, the lost revenue from the lowered monthly payments must be less than the loss associated with a foreclosure. When looking at the situation as a lesser of two evils, in most cases, a loan modification is going to create the best case scenario especially with the current housing market conditions. |
