More Loan Modifications involve principal reduction than in the past.

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10% of loan mods that occurred in the last quarter involved forbearance (where a portion is set aside on which no interest is charged but has to be paid off upon sale) or principal reduction.

I also got a chance to meet SVP’s at BofA, Chase, and Wells Fargo at the C.A.R. show this weekend, and they all said they’re getting better at it. However the decision to grant a loan modification is still based on a business decision. That does the Net Present Value of the new Loan exceed what the property would net the investor in foreclosure. If yes, than loan modification is the answer.

Also both the BofA and WF rep confirmed the recent increase in deferment of foreclosures is because the Obama government (ala Treasury Dept), is pressuring the banks to attempt loan modifications if requested.

One other interesting tid bit was I got was even though currently the loan mod decision is a business decision, this could change in the future and will depend what direction the government pushes the banks.

Read the full story here at the Wall Street Journal.

Please comment on your experiences.

Sunil Sethi
SMA Realty

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