http://ocforeclosureoptions.com Lenders will never accept $40,000 on a $100,000 loan? Never say never! It all depends on the situation and even more importantly, how your agent frames the hardship and sets up the file. Most agents think that the banks care about loss severity a lot more than they actually do. Now don’t get us wrong, the banks do care about loss severity a lot. $40,000 recovery on a $100,000 loan is a loss severity of 60%, and that is taken very seriously. The bank originally put up $100,000 for the mortgage and they aren’t going to walk away with only 45% of it without doing their homework. The lower-level bank employees who set up your files and take your agents calls are not going to be able to approve a loss severity of that magnitude. You are lucky that those lower level bank employees aren’t the ones with the final say. Unfortunately, they are the roadblock that you have to get over or around in order to get to a senior loss mitigator or AVP who understands math and can make a decision on the file. If your agent can convince a higher level mitigator at the bank that your offer has merit and reflects current market value, there are many cases where the bank will accept a significant loss severity… even one as high as 60% in first position. The degree of loss severity a bank is willing to accept all depends on the situation, and again …this can’t be stressed enough…how your agent presents the file and hardship. Consider a property that has a fair market value of $45,000, but whose owners owe $100,000. No matter which way you look at it, the lender is going to be out a significant portion of their initial investment. In this case, they might accept an offer of $40,000 to avoid the hassle and uncertainty of letting the house go into foreclosure and then having to resell it as an REO. First position liens rarely see a loss severity as high as 50%, although it definitely does happen. However, a loss severity of 99% is not uncommon in second position or other junior liens. If ...
