Question: Are mortgage lenders loosing out on opportunity with today’s mortgage crisis?
Answer: I think they are! We know that people are loosing jobs left and right. We know that lenders are foreclosing on homes left and right. We know that some lenders had/have gotten a bit irresponsible with there lending practices. We also know that lenders are taking steep hits financially on the resale of homes in which they have foreclosed on.
So, how can the lenders fix this problem? In my opinion, by working more closely with the home owner and implementing a long term solution to a likely short term problem. Homeowners when faced with a financial crisis have two options to pay the mortgage or not to pay the mortgage? Regardless of whether the home was to much for them in the first place is not of relevancy because of the fact they are already in the home. Lenders could work more closely with the homeowner by reducing monthly payments to affordable levels. While the homeowner is earning unemployment compensation the lender can take perhaps 1 weeks pay for the monthly payment and take on the remaining amount due to an additional month at the end of the loan. If they job the homeowner does get does not enable them to pay the normal mortgage payment the lender again can 1) extend the length of the mortgage to make it more affordable or 2) reduce interest rates to make the monthly payment affordable.
It would seem to me that by working with the client more closely and adapting there mortgage offerings based on there clients needs would yield several positive results.
1. The mortgage lender manages to still receive some type of income from there troubled homeowners. Certainly better then not getting anything at all.
2. The mortgage lenders will likely loose revenue due to decrease in home values if they foreclose on homes in certain areas, resulting in a better long term decision that has a better chance of working out.
3. The mortgage lender can conduct semi-annual audits to ensure that the homeowner payments are still in line with the monthly income. If the income goes up so should there payments.
4. The mortgage lender will no longer sit on vacant homes. Remember when the bank forecloses on homes and takes back ownership they also have to pay property taxes. Take a few thousands homes with taxes varying in many different areas and this can have a negative impact on the bottom line. The mortgage lender never really planned for this many foreclosures in there budgeting meaning less income and more expenses. Taking initiative to work with the homeowner with more flexible payment options assist them in avoiding these things.
5. Build loyalty! Probably one of the most important long term effects that this type of initiative could provide. If you were risk of loosing your home and the lender does everything possible to help you stay in your home, wouldn’t you be a loyal customer of that lender? After our economic storm, these lenders will have a competitive advantage that will be extremely difficult for other lenders to break, customer loyalty.
Truthfully, I can go on and on about how this could benefit the lenders and the economy but I think you see the point. The question is when will these lenders wake up and realize they are taking bigger hits then what they have too?
What are your thoughts? Do you think this type of initiative would be a good idea or a bad idea? Why? Post your response on my blog by clicking here.
I'll note that all of the above is based soley on my opinion and little is actually concluded from facts.
