Neg Am Loans & Loss Mitigation

[Nomarac]

Has anyone successfully achieved a note modification on a Negative Amortization loan? Any details would be appreciated. Are these even worth looking at?

[877YouKeep]

these are sub prime loans and they are the reason we are in business and the economy is sucking although there are many other products that are faulty. Yes neg am loans can be worked out if the homeowner can afford their home. You just need to be careful with the home LTV and UPB although regulations are getting more lax.

[Gonetodocs]

Nomarac,
There is a lot of truth to 877YouKeeps' statement however let me clarify just a little. The Negative Ammortization loan (AKA Pay Option ARM) is a very complicated yet viable product for the sophisticated or risky investor. The abuse of a Neg Am. Loan along with 2/28 Subprime loans by untrained or in most cases shady brokers is the cause of the undoing of the mortgage market.

There is no formal training for a loan officer unless you pay for it which can be expensive (unless you consider requiring a real estate license which is to say the least easy to get) and even less if any emphasis at all is exerted towards ethics. New loan officers don't have the cash but then once they make some cash then they somehow tend to believe they don't need to be trained because they are all of a sudden heroes in the forefront. Catch 22 I guess. So they didn't have the experience to know how dangerous they really were

Kinda like the gun in the wrong hands kills people. Don't give a 10 year old a loaded 9MM so to speak. Yet a trained expert marksman with a specific goal and ethical common sense can be allowed with relative comfort to weild a deadly yet powerful weapon.

So who should we blame for the crisis? Definitely The enabler, that being the mortgage broker for putting the gun in the 10 year olds hands (to stick w/ the analogy). By the Way I am a mortgage broker and I am not singling myself out. However I have only put 4 clients total in these types of products over the last 7 years though (to save a little face here).

In regards to your direct ? 877 is right again because they can definitely be worked out. The servicer (not the person holding the note (which would collect the principal balance if it was paid off in full) makes approx. .375% on each loan every month that they collect a payment. So the servicer (the company sending you a statement and collecting the payment) wants to continue to receive the monthly payment. Incentive for them to work something out if the homeowner can show them without a doubt that they could continue to make reasonable monthly payments after the loan is modified.

Hope this helps and thanks for listening to me rant here on the forum. Man I am way too wordy. I hope no one takes offense.
Warmly,
Gonetodocs

[877YouKeep]

The % depends on the investor and servicer agreement. For instance Fannie keeps their notes in a Pool and the servicing fee is different than than if a loan goes into default. The servicer % goes down as soon as the loan is modified because it is pulled out of the pool of loans. I think the % goes down to .25% I will recheck my numbers and report back. In fact in the pool I think it is only .45 %. Again I will let you know.

[Nomarac]

I know some here in the forum will appreciate the details about Neg Ams. I too am a mortgage broker that was never fond of Neg Am loans. In the area of loss mitigation, though, I have little experience so I was wondering if forum members that have been doing loss mitigation for some time have had success in achieving note modifications on Neg Am notes. More or less... is a servicer/lender any less likely to mod a note on the basis of it being a neg am vs. other types of notes?

Thanks.

[877YouKeep]

To be perfectly honest with you these are what started the melt down and easiest to work. These loans are subprime and creativity is the name of the game. Homeowner financials are the key to loss mitigation so to get a proper workout you need to work with the homeowner coaching on their income and expenses. Many investors will take verbal financials now and you work the numbers to get it perfect. You fiduciary responsibility is with the homeowner and you do not in anyway set them up for failure but you can get them a good program.

[lisannem]

I have also been in the mortgage business for 9 years, and have only put one person into a negative am loan. I was never very fond of these products either. Most consumers will not understand this type of loan.

I fully agree with the training comments. Most LO's work for companies who want to keep them in the dark. I'ts expensive and time consuming to train people and most productive LO's who are trained and have any type of business sense will take what they have learned and do their own thing. I have never subscribed to this theory, but many managers out there would prefer to keep their people in the dark (they don't want to loose their highest producers). Therefore you had people who didn't understand the products themselves selling them to others.

I personally worked for a large company when I first started in the business and I went through three months of classroom training before I ever spoke with a customer. We were required to pass tests at the end of each week in order to stay in the training program. When I ran a branch I provided as much training as possible. I paid for my LO's to attend a mortgage LO training program at a local real estate school, so they at least had a good basic knowledge of the industry. I also created in house training programs that the LO's were required to attend.