When finances aren't working out, and people are forced to ask for help, (such as restructuring their home loan) it's easy for them to feel bad, almost like a "second class citizen". Because of their situation they often feel like they're asking the bank to do them a great favor. While it's easy to understand how someone can feel that way - it's also one of the worst things they can do.
If the economy has ruined your cash flow, then it's true you're in a bad situation - but so is the lender. At this point it isn't even how you got there that matters. It's about fixing it (if it can be fixed). You both have a lot to gain, or a lot to lose, depending on how successful the two of you are at restructuring your mortgage.
So don't feel like you're asking for any great favors. The truth of the situation is, it's in their best interest to help you. Once you truly understand this you'll be able to negotiate more favorable terms for yourself. If you don't understand it, you'll be in a weaker position.
Step 2: Understand Why the Lender Should Help You
Do you believe knowledge is power? You will once you've read this section! What I'm about to reveal to you is what it would mean to the lender if they let you default on your mortgage.
For starters, someone has to handle the foreclosure process. Meaning someone has to be paid - which is an additional expense for the bank. But that's only the beginning.
What usually happens next is they're going to find a house that's been trashed out by the people who had to leave. (Even if you'd never do that, it's still a reality that happens all the time. Which means they need to factor that in to what it's going to cost them - on average - when a home is foreclosed on and repossessed). But that's not all.
Next, they'll have to put it on the market and try to sell it. Bad, bad, bad. Seriously. Now they've got to spend time and money trying to sell it. They're not realtors, and trust me, they don't want to be either. But we're still not though. It gets even worse.
With declining prices and home values, and the difficulties selling in these markets, your lender could be sitting on your home for months - who knows - maybe even years - until they're able to sell it. All of which ties up their cash flow, which they can ill afford. (Especially in this economy).
Finally, consider this.
Who knows how many other accounts are sitting on their books about to foreclose? Multiply every problem above times however many other accounts are in the same position and you begin to realize their situation.
Step 3: Understand How to Use This Information
These are challenging times we're going through. Remember, the purpose in using what you know isn't to try to manipulate or blackmail the system. The truth is we're all in this together. We need the lenders, and they need us. What we're looking for is a fair and reasonable outcome for both parties.
So don't be defensive or confrontational. Instead, use this information to prepare yourself. Use it to know how to respond when you're negotiating rates and terms. Always be polite. But by no means go in there thinking you need to be apologetic. You're trying to help both sides out of a difficult situation.
