Why do lenders prefer a loan modification over a foreclosure?

Today in America foreclosure rates are higher than ever and many people are in desperate need of a modification. Many homeowners are beginning to default on their payments due to financial hardships such as lost jobs or even had there ARM loan adjust to a payment that is just not affordable. The question many people are asking is “why does a bank choose to foreclose rather than perform a loan modification?”

Well as we all know mortgage lenders are currently playing hardball when it comes to modifying your mortgage. But many homeowners don’t know that foreclosure do not benefit the bank much at all and they should modify to save them the trouble. One reason why it is so hard to get your lender to work with you is because they are just overwhelmed with thousands of loan mod requests from all over the united states. Each and every request takes a certain amount of time to review and make sure the calculations are correct.

Foreclosure is more expensive and the process to do so is much longer than that of a modification. There are mortgage laws that vary from state to state that require your lender to wait a certain amount of time before they can legally proceed with the foreclosure process. I have seen in many cases this process can take up to a year to complete. By having to go through such a long process this will end up costing the lender a significant amount.

On the other hand, the loan modification process can take as little as 30-90 days from start to finish. But now since since the economy has gotten worse and so many people are in need of assistance, this process may take longer than normal. During this process your lender will have to review your entire financial situation including credit history, pay-stubs, bank statements, tax returns, etc in order to qualify you. The negotiation part seems to be the most difficult part of this process along with false accusations, miss calculations on the lenders behalf, etc.

If the lender chooses to foreclose on the property it will cost them a lot of money in additional fees to move forth with the sale. They will have to spend money on the filing of the Notice of default (NOD), hefty attorney fees, and also arrange the home to be sold at an auction. But even if you have made it to the beginning of this process you can still try and save your home. It is in the investors best interest as well for you to stay ion the home because of our current economic crisis it will be very unlikely for them to sell the home for a decent amount.

It’s sad because even though it benefits the lender to perform a modification it is very hard to get them to do so. Just remember that they are overwhelmed with requests so you must do your part and follow up with tem as much as possible. This will help make sure the process goes as smoothly as possible.