First, for a loan modification process to start the borrower will have to be behind on their mortgage. Once a borrower falls behind, they are first directed to the collections department of the bank. The collections department is the initial department that attempts to collect on any past due mortgage balance.
Yet, the department that a loan modification specialist wants to talk to is loss mitigation.
Loss mitigation is used to describe a third party helping a homeowner, a division within a bank that mitigates the loss of the bank, or a firm that handles the process of negotiation between a homeowner and the homeowner's lender. Loss mitigation
works to negotiate mortgage terms for the homeowner that will prevent foreclosure.
Yet, loss mitigation often doesn't get involved until a borrower is at least 60 days behind. Think about what that means. If you are borrower and you are only one month late, then you don't qualify YET for a loan modification. Now, if you were to fall another month behind then you are likely more eligible for a loan modification. Frankly if that doesn't work, you need to fall even farther behind.
Now, once the loan goes to the loss mitigation department then that department begins the long process of modifying a loan with the person representing the borrower. This process can take anywhere between 60 and 90 extra days. Now as soon as a loan modification company steps in, they usually negotiate with the bank to stop all payments while the process is continuing. This means that borrowers often don't make a payment for up to six months. Then, after the process is over they are "rewarded" with a new loan in which the terms are much better than the ones they were currently in.
So, what do we have? We have a process in which a borrower isn't merely encouraged to fall behind on their mortgage but frankly is often required to fall at least two months behind. Then, as soon as the process starts, the borrower is immediately removed from the responsibility of making any more mortgage payments. Then, after this process is over this same borrower is rewarded with a loan that is better than the one they couldn't pay back. Now, what do you think will happen once the process of loan modifications becomes well known to all borrowers currently struggling with their loans?
That's exactly what will happen because the FDIC is already guaranteeing millions of loan modifications. In California, a borrower can't be foreclosed on before the loan is modified. Furthermore, Barack Obama has made his intention known that he will do everything he can to avoid foreclosures. As such, we will soon see all those struggling to make their payments and certainly those just a bit behind on their mortgage begin to fall farther behind because the process of loan modifications not only encourages such actions BUT IT REQUIRES IT.