THE MORTGAGE MODIFICATION UNICORN; PRINCIPAL REDUCTION

We do loan modifications; lots of them. It's our primary work in over 90% of the hundreds of residential mortgage foreclosures we have handled in South Florida in the last few years. The holy grail, the goal of most of our clients, when faced with a mortgage which has become “upside down” since the collapse of the real estate market, where the home is worth less than what is owed to the bank, is to obtain a modification of their mortgage, which reduces the principal balance or the amount of the underlying debt.

It is this reduction of principal balance that the “upside down” homeowner has been clamoring for since the beginning of the mortgage crisis and the real estate collapse in which the banks and lenders, for the most part, for most of the last three plus years, have been steadfastly refusing.

The initial public position of the banks, when confronted with this issue, was to complain that if they reduced the principal balance for the “deadbeat” borrowers (the people who weren’t paying their mortgages) they would have to do it for their “good customers,” (the ones that were paying their mortgages). This, they claim, would bankrupt them, would promote bad behavior, would turn every honest, hardworking, bill-paying, contract compliant, red-blooded American into a “deadbeat” and guarantee the destruction of the western world as we know it today.

Guess what? The banks are, selectively, quietly, in individual cases, offering and entering into loan modifications in which the principal balance is reduced and debt is forgiven. Wow!

The unicorn lives. It is white, with a flowing mane, and it is beautiful. Apparently there are males and females because they are breeding and their numbers are increasing. The real trick is how to capture this elusive and beautiful beast.

We have a theory about how to obtain a principal reduction on a residential mortgage, based upon our own empirical experience. (There will be future blogs on this subject.)  But the threshold answer on how to obtain such a reduction, although simplistic, is often overlooked by both laypeople trying to negotiate their own loan modification and, in our experience, so called “professionals;"be they the various cottage industries that are sprung up like mushrooms after the rain, or the innumerable law firms engaged in this enterprise;. The secret is to ASK FOR IT.

Various analogies of this approach come to mind, but they cannot be repeated here because this is intended to be a “G” rated blog. So we will conclude this post by simply stating that asking cannot hurt, and while you are asking, if you can present a “package” – a “picture” of a situation where it might be in the mortgage company’s best interest to consider such a reduction, you might yet live to see and experience the miracle of the unicorn.