1. Field of the Invention
This invention relates generally to loan modification. The invention also relates to more accurately determining when to modify a loan to maximize the value of a loan portfolio. The invention also relates to using multiple criteria when determining how to modify a loan.
2. Description of the Related Art
Customers borrow money in the form of mortgages to purchase homes. These mortgages (loans) can be for a certain period of time, such as 5, 15, or 30 years. These mortgages can have adjustable or fixed rates. Adjustable rates may be adjusted periodically to correspond with prevailing interest rates.
In general, customers who are considered at a lower risk for default are given the best rates. Customers will sometimes fall behind on payments, making partial payments, or completely failing to make payments. Falling behind on payments can result in a default, and eventually, in foreclosure. In response, the lender will sell the home and apply the proceeds to the mortgage. If the mortgage is greater than the proceeds, the lender will take a loss.
To account for the risk that a borrower will be unable to make payments, and that the home will have to be sold for a loss, lenders charge an appropriate interest rate. In some cases, when a borrower is unable to make payments, the terms of a mortgage may be renegotiated with a borrower. This renegotiation may result in the terms of a loan being modified.