Since the collapse of the housing market in late 2007, leaders, policymakers and financial experts have been looking for a solution to the nation’s mortgage-based financial woes.
Despite economic incentives from the federal government, though, few mortgage lenders have offered the loan modifications necessary to keep borrowers away from foreclosure.
This New York Times home loan article details why. In brief, here’s what’s going on:
- As part of recovery efforts, the Obama administration implemented a $75 billion program to reward lenders who modify troublesome home loans. The program essentially distributes $4,000 to lenders for each modified loan over a four-year period.
- According to a report from the Federal Reserve Bank of Boston, though, only about 3% of seriously delinquent loans have been modified in the foreclosure crisis. The reason? Banks and mortgage lenders can collect fees on delinquent loans. After a home goes into foreclosure and is sold at auction, the mortgage company can collect fees from the proceeds for insurance, legal services, title searches and appraisals.
Interests of Lenders & Borrowers at Odds
Though bank officials and others involved in making mortgage loans have reportedly denied that they would act solely for profits, evidence seems to point toward just such behavior.
While most borrowers – and the housing market in general – would benefit from modified loans, many lenders stand to lose money from stopping foreclosure.
This trouble in home lending is really just the most recent manifestation of the system that allowed the market to get so out of control – and to collapse so heavily – in the first place. Here’s what happens:
- A borrower takes out a mortgage loan and agrees to pay a certain amount of interest.
- The loan is put into a pool of loans, divided and sold to investors in pieces.
- Every time a borrower makes a payment, some of the interest goes to each investor who “owns” part of the debt.
- Loan servicers, who act as middlemen in this process, collect service fees every time they have to service the loan in some way (e.g. by assessing late fees).
- Servicers acting in their best interest, then, often prefer to limit loan modifications and milk late and delinquent loans for fees.
Additional Resources
Why Don’t Lenders Renegotiate More Mortgages?
American Recovery and Reinvestment Act of 2009
Tags: foreclosure
This entry was posted on Sunday, August 9th, 2009 at 2:38 pm and is filed under Mortgage Foreclosure. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
[...] Meaghan Olson wrote an interesting post today onWhy So Few Home Loans Have Been ModifiedHere’s a quick excerpt [...]
Doesn’t it seem strange that THE ONLY ADVICE government officials give homeowners having mortgage payment difficulties is to tell them to go back to their lender, or through a HUD/FHA Counselor (and then back to the lender) to obtain Home Loan Modification help?
Let’s investigate this for just a moment.
During the home sales boom cycle the lenders became VERY GREEDY. As the opportunity for profits went up, the ethics/legality/morality of the loans they made went down. Later in this process loans were even being made to persons with no jobs and little, or no income at all!
Oh, and where was the government during the loan feeding frenzy? They turned their heads and DID NOTHING!
The most recent reports from borrowers who have completed Home Loan Modifications using these government recommended processes have been streaming in lately and are available for viewing all over the internet. VIRTUALLY ALL OF THESE REPORTS CONCLUDE THAT THE LENDER HAS GIVEN THE BORROWER VERY LITTLE, OR NO HELP AT ALL!!!
However, in the face of all of these results, government officials, supposed “gurus” and other so called “experts” continue to tell borrowers that government and direct lender assistance is the best help available! WONDER WHY? IT’S ALL ABOUT THE MONEY!
Using this same logic, the best way to prepare your income tax and maximize your deductions is to go to the IRS for help!! Why do so many people (even the government officials we are speaking about) hire help to prepare their taxes? SINCE WHEN HAS FREE HELP EVER BEEN THE BEST HELP AVAILABLE?
So, what does the AVERAGE OUTCOME of a Home Loan Modification THAT YOU ACTUALLY PAY FOR look like?
The firm I work for has averaged monthly mortgage payments reductions from between 20 - 50% for up to 5 years and the conversion of their existing loan to fixed interest rates in the 4 - 5% range for the full balance of the term of the mortgage! These averages come from over 200 completed resolutions!
Our firm is NOT ATTORNEY-BASED (unless paying higher and unnecessary additional fees is important to you), but does have substantial knowledge about specific legal issues. Our firm has reasonable performance guarantees, a 100% Money Back Guarantee and reasonable program fees (well under $2,500).
So, let’s do the math. Say you are a homeowner who has negative equity on an existing 6.75% fixed rate 30 year mortgage of $200k, that has a payment with interest of $1,298. Using the average results shown above, your new payment at only a 30% modification is $909 for up to 5 years and you will save well over $80,000 in interest over the life of the note!!
Ok, so you don’t plan on staying in the house much over 3 years - using these same numbers shown above, you will save over $14,000 in monthly payments alone during that time!! ARE THESE AVERAGE MODIFICATION RESULTS WORTH THE FEES?
The answer is simple folks - THE LENDER AND THE GOVERNMENT THAT REPRESENTS THEM DOESN’T WANT TO GIVE THE MONEY BACK! EXPERT NEGOTIATION, HOWEVER, WORKS WONDERS!!