lorcha said:LordKronos said:As much as it pains me to agree with win333 and his tourettes ridden posts, did you even read what he was suggesting? He was saying rather than missing a few payment and harming your credit permanently, you could try to "damage" your credit with an App-O-Rama and then request the lower rate. Feel free to try win333's method after your next A0R, but it's been my experience that you will never get the time of day from a bank's loss mitigation department unless you are in arrears. I guess they just figure as long as you are current, why do they need to negotiate?

In this market, MAYBE if it looks like a duck they might BLINK and think you are going to be the next foreclosure that lowers their portfolio value. Normally your foreclosure is no sweat off their backs, but right now THATS WHATS KILLING THEM!

This market has changed the rules from what we are use to.

lorcha said:win333 said:In this market, MAYBE if it looks like a duck they might BLINK and think you are going to be the next foreclosure that lowers their portfolio value. I'll never say never, but tell me, win333, from the bank's perspective, what does the bank gain by offering a loan modification on a performing loan? What does the bank have to lose by waiting until the loan actual goes delinquent?

I can't think of a single thing.

It's a business, why would they lower the rate for the OPs client. You just never know, i'm not saying it will work but geez nothin to lose.

I wasn't really looking for an answer to why they lowered OPs clients rate, WE CAN'T FIGURE THAT OUT, just knowing it's possibly can help.

Why do creditors give credit cards when you have 30 INQs on 1 report, who knows, who cares! Just give me mine.

win333 said:It's a business, why would they lower the rate for the OPs client. Because OP's client wasn't payin'!
i'm not saying it will work but geez nothin to lose.I agree with you 100% You have nothing to lose by trying.
I wasn't really looking for an answer to why they lowered OPs clients rateAnd that wasn't even what I was asking you about. My question is "What is the advantage to the bank to take a loss on a performing loan before it goes delinquent?" There is nothing the bank can do pre-delinquency that it can't do post-delinquency. For all the bank knows, maybe you've got a rich uncle who doesn't want you to be homeless.

Anyway, I'm just describing my experience dealing with banks. I hope you are able to negotiate a great post-A0R loan mod for yourself.

lorcha said:win333 said:In this market, MAYBE if it looks like a duck they might BLINK and think you are going to be the next foreclosure that lowers their portfolio value. I'll never say never, but tell me, win333, from the bank's perspective, what does the bank gain by offering a loan modification on a performing loan? What does the bank have to lose by waiting until the loan actual goes delinquent?

I can't think of a single thing.

lorcha: that's an excellent question. If you express the setup (owner, lender, mortgage, payments, missing payments, etc) as a game tree, what you are saying is that it is never optimal for the bank to agree to reduce the rate before the owner has missed payment.

I disagree with you on two counts:

1. The owner can take his business elsewhere. So the bank has an incentive to lower the rate close to the prevailing rates, but slightly above. This assumes there are no pre-payment penalties,

2. If the bank calculates that there is a high probability that the owner will foreclose on purpose, then the bank has to evaluate their net payoff in case that happens in x months vs. reducing the interest rate now. What if the owner writes a letter stating that he has experienced unexpected reduction in income and will be unable to meet the mortgage payments UNLESS the bank reduces the price? Add to that sufficient conditions, such as purchase-money loan w/ no recourse beyond the collateral, and you have the ingredients for the owner to drive the game tree to an outcome that puts the bank at a significant disadvantage. Of course, the owner has to be willing to take the fall in credit scores. But in the view of the credible "threat" (unless the lender reduces, he is NOT going to pay) the bank has a decision to make that can tip either way.

tolamapS said:1. The owner can take his business elsewhere. So the bank has an incentive to lower the rate close to the prevailing rates, but slightly above. This assumes there are no pre-payment penalties,This is NOT what we are talking about here. And I think you'll find that most lenders will do a low-cost or zero-cost refi for qualified borrowers. Again, this is totally irrelevant to the delinquent borrower or A0R-doing borrower case.
2. If the bank calculates that there is a high probability that the owner will foreclose on purpose, then the bank has to evaluate their net payoff in case that happens in x months vs. reducing the interest rate now. What if the owner writes a letter stating that he has experienced unexpected reduction in income and will be unable to meet the mortgage payments UNLESS the bank reduces the price? Add to that sufficient conditions, such as purchase-money loan w/ no recourse beyond the collateral, and you have the ingredients for the owner to drive the game tree to an outcome that puts the bank at a significant disadvantage. Of course, the owner has to be willing to take the fall in credit scores. But in the view of the credible "threat" (unless the lender reduces, he is NOT going to pay) the bank has a decision to make that can tip either way.But why do it before the loan is even delinquent? Maybe borrower finds another job, maybe he gets the money from his parents, or a credit card, or whatever.

I am very well-versed in the reasons why banks negotiate with delinquent borrowers, which is what you tried to answer. I see nothing in your answer that tells me why a bank should modify a loan that is performing. DavidScubadiver at least gave an answer to the question. I happen to think his answer is overstating the pressure that banks feel to keep loans current, but at least he answered the question, as asked.

You have answered a separate question--one that I already know the answer to.

lorcha said:But why do it before the loan is even delinquent?

Because once delinquent, w/ high probability the borrower will choose foreclosure over getting the loan current.
Once delinquent, the damage to the credit is mostly done, and now the borrower is simply maximizing net present value of cashflows.

Another reason. If borrower asks for rate reduction, and the bank refuses to do so, borrower makes up his mind that he is going to: (1) become delinquent, (2) live rent-free for a while, (3) make up the lost equity as a result of foreclosure, all at the expense of his credit.

win333 said:1,000,000 30 yr fixed at 1% is about 1,000 per month. I bet I can make my payment then.Check your math.

win333 said:Stay tuned, I'm waiting for my 1% mortgage, then I'll REFI! 1,000,000 30 yr fixed at 1% is about 1,000 per month. I bet I can make my payment then.

I would LOVE to pay back a $1,000,000 loan at $1000/month for 30 years. Shoot, can we make it one billion dollars?

Really I was thinking of an interest only loan, my last homes start rate was 2.60% interest only. Thats the kind of rates that are in japan, maybe we are next.