Finding Alternative Solutions to High Foreclosure Rates.

With a record number of foreclosures and costs ranging from $50,000 to $100,000 or more per foreclosed loan, lenders are taking a beating on their REOs. The industry is in crisis, yet many are busy pointing the finger rather than getting into the solution. Its time to break out of the mold. If lenders want to put an end to accumulating excessive losses, theyre going to have to change their ways of handling foreclosures.

The industry has reached new territory. It takes two to three times as long to sell REO properties and borrowers are facing a magnitude of payment shock thats never before been realized by the American public. Despite these immense differences, lenders continue to use solutions that were designed for an outdated industry model. Quick disposition is no longer an option, and banking on a borrowers ability to find alternative financing will result in money lost on both the borrower and lenders side of the transaction.

Lenders, who are still threatening bad credit ratings and foreclosures in an attempt to get the borrower to make good on their loans, need to get out of denial and realize that this method doesnt work in todays market. Borrowers dont have the options that were available in previous foreclosure markets. In the past, borrowers have secured high-cost, short-term loans or used accrued equity to tie them over until they could dispose of their homes or get better financing rates. In todays market, the subprime market is no longer an option, and due to declining values theres no longer the safety net of built up equity. In fact, with so many negatively amortizing loans, borrowers often find that they owe more than their homes are worth. Under the current paradigm, borrowers are stuck, and lenders are losing money because of it.

Sixty percent of defaulted loans go to into foreclosure without any borrower contact whatsoever. The sheer number of borrowers slipping into default has caused a backlog that lenders are struggling to manage, which in turn costs them even more money. Now, more than ever, the industry needs an alternative to the ineffective ways of handling defaults and foreclosures. Its time for a shift in our paradigm. Rather than dealing with foreclosures, lenders need to start employing tactics to prevent foreclosures and keep borrowers in their homes.

Flexible Workout Solutions

Old-school methods using coercion and scare tactics simply dont work any more. Unless they want to bulk up their REO portfolios and take the resulting losses, lenders need to employ more borrower-friendly methods. They need to use win-win settlement strategies focused on keeping borrowers in their homes when contacting the borrower. Anything less will lead to continued losses on both the borrower and the lenders end.

And while most defaulted loans are from subprime loans and not from government-sponsored enterprises, its still important to note that the standard Fannie Mae, Freddie Mac and FHA guidelines for developing workout solutions are ill equipped to handle the tsunami of defaults and foreclosures in todays market.