Talking with many mortgage brokers, we are fully aware of the problems with loan shortfalls. Not being able to consolidate a client’s finances can often spell disaster for a loan application and can be very disappointing for both the client and broker alike.
The reasons for loan shortfalls are varied. However, borrowing capacity and disappointing valuations are the main culprits. In the case of a debt consolidation the purpose of the facility is to amalgamate the client’s debts into one manageable facility. If all the debts cannot be incorporated it can somewhat defeat the purpose of the refinance in the eyes of the client; this is particularly relevant if some of the debts are in arrears.
Many situations will require that all the client’s debts are covered in the refinance in order to give the incoming lender comfort that their facility will be serviced and they are providing a benefit to the client. If the maximum loan available does not allow for this the transaction will most likely not proceed.
The good news is that in many cases loan shortfalls can be dealt with using effective debt negotiation.
Unsecured creditors are aware of their often exposed position and, given the right approach, they will consider a reduced payout in order to allow a refinance to take place, particularly if a loan is currently in arrears.
Imagine a credit card provider that is owed money on an account that is delinquent. While they do have the ability to commence recovery action, the reality is they are exposed and they will typically consider a settlement offer rather than enforce proceedings against a client.
Please don’t think I’m in any way trying to deny anyone collecting what that are owed. On the contrary! Effective debt mediation is about helping credit providers recover the maximum amount possible and escape from what may end up being a far worse situation for them at a later date. In my experience most credit providers are thankful to be given this option.
Credit providers who are approached to reduce a payout figure will require a comprehensive submission covering the client’s overall position, and most importantly why they should consider reducing their debt. Given the matter is presented in the correct fashion and the credit provider is interacted with in a respectful manner, you may be surprised at what can be accomplished.
I have witnessed discounts of up to 80% in certain situations.
The next time you are faced with a loan shortfall take a close look at the unsecured creditors involved; you may just be able to save the deal after all.
