With this awful real estate market we find ourselves with a couple of consumer construction loans that with the decreasing home values, the homes are complete or almost and the LTV while it was 75% when the project was done, they now are closer to 90-95% LTV.. my problem, we did not commit to the long term take-out on these, but the borrowers are having difficulty getting a long term loan. So, we are considering doing a change in terms to extend the maturity date for say 12 months with the hopes that values will be more in line and borrowers can arrange long term take-out. So my questions,
1. we have interest reserves left, we would like to apply this to reduce principal balance... what if anything must we do or give to consumer? disclosures or otherwise?
2. borrowers would rather leave interest reserves in place to contiue to make payments from this until funds run out.. are we obligated to do this...
3. our documents indicate we can technically call loan in default due to either material decline in borrower financial position, or material decline in security..but we would like to work with consumers...if at all possible..
So, I'm interest in your thoughts!