“I am assuming you are talking about “prime loans”. Are the lenders treating borrowers of prime loans differently b/c they are less likely to take advantage of the system ?”
Not necessarily, we just know what flags to look for depending on what type of loan product we are dealing with.
“I recently read some articles about lenders/servicers agreeing to “restructuring” an ARM instead of letting it reset. Is this process similar to short-sale approval ?”
What you’re referring to is a modification of the orginal loan or a MOD. We do those as well. Basically we restructure the loan to make it affordable for the borrower. Typically we will structure the loan to have the interest rate stay the same for 2 years until the borrower is back on their feet or if the borrower was severely behind, we will forgive the debt or recap the deliq amount into the loan. Sometimes we may use a combination of all these tools together. When reviewing for a modification we look at our risk position (is the asset already upside down, what is the borrower’s capacity and commitment to pay, what are the investor guidlines, etc.) If the value is already upside down, yet the borrower has a history of making payments it may be in the best interest for the bank to modify the loan and maintain positive cash flow.
