There was a startling article in the New Yorker last week titled, “Not Home Yet.” It’s why banks are slow to help people who need to do a loan modification.
One only needs to look at the accompanying graphic (left) as a metaphor for what’s happening. A fireman steps on the fire hose, preventing water from extinguishing the house fire. It can be interpreted as, “A lender blocks funds, preventing money from going to desperate homeowners who need to do a loan modification.”
Why would banks deliberately slow down funds, or not even help their borrowers? Two reasons, according to a recent paper by economists at the Boston Fed:
- 30% of delinquent borrowers “self cure,” which means they get back on track themselves.
- Between 30-40% who do get loan mods usually default anyway.
So, now what? The idea of direct aid was floated (have government make low-interest loans or grants to hurting homeowners), but how fair is that to everyone else? However, if homes continue to foreclose at a high rate, you might just want your neighbor to get that deal so your home’s value isn’t dragged down, too.
None of it is pretty.
Take this loan modification quiz:
“Do You Qualify for a Loan Modification? You might. Take the quiz to see if you might qualify for a loan modification. Or, if you have a Web site or a blog, add the loan qualification widget to your site. It’s free and a fun little quiz to keep your visitors engaged. Plus, you get free co-branding.
(Illustration by New Yorker)
Last 5 posts in Loan Modification
- Bank Accidentally Sells House as Foreclosure - November 11th, 2009
- Loan modifications are lowering monthly payments - October 4th, 2009
- More Homeowners are Late on Their Mortgages - September 21st, 2009
- Successful Short Sales…I mean plural…more than one! - September 14th, 2009
- FHA Mortgages Now Qualify For Government Help - September 3rd, 2009
- Stumble it!
- Categories: Loan Modification
Comments
5 Comments so far
Joanna Jensen
Hi, I have to say I disagree with the 9% statistic.
I do Loan Modifications and I work for an attorney. I process them myself. It depends on a few important factors. Who is doing the loan modification. How persistant are they? How much experience do they have in submitting these. Some homeowners submit there information and make themselves sound so pathetic that you wouldnt even lend them $5. When I do a loan modification our law firm counsels them. We help them make hard decisions. Do they need to make cut backs on spending? Do they need to settle credit card debt? Are they spending too much on groceries, shopping, etc. I have met clients and they were denied but when they submitted their modification package they had a deficit of $2,000 or more. The lender most likely will not approve that on the spot. You have to think of is as a business decision. Think like the lender, if the lender takes off $1500 per month and your still negative then your in trouble.
The real way to know if you will be helped is how much of your income is going to pay your mortgage? Are you paying more than 40% of your income to your 1st loan ? Is your 2nd loan unspide down.
You may be a candidate for bankruptcy if you have a 2nd loan that is unsecured. We can help our client completely strip that loan and get rid of that paymnent all together.
If credit cards and spending is your real issue you may need to think about either settlling your debt or bankruptcy.
Either way dont let debt stress you out. Cash is king. Make sure you are puting some money into savings and that you have enough money to pay for food, housing, necessities. Dont be too stressed to enjoy your family!!! If your mortgage and finances are always on the top of your mind its time to do something.
JoAnna Jensen
Realtor Paralegal
Pleasanton, CA
Craig Ballhgen
weather it is loan modification or Obama’s refinance plan, both are very slow moving. I believe the hardest part is tying to sort out who really needs the help and the others who want someone else t clean up their mess
Steve Cook
Your information on cure rates from the Boston Fed study, which was based on pre-2006 defaults, is out of date.
Last week Fitch Ratings came out with a new study that found cure rates for prime loans have declined from an average of 45% during 2000-2006 to the currently level of 6.6%. In addition, Alt-A cure rates have dropped to 4.3%, from an average of 30.2%, and subprime is down to 5.3% from an average of 19.4%.
The Fitch study suggested that the principal cause of the decline in cure rates is the fact so many more borrowers owe more on their homes today than they are worth because of declining property values. “The general deterioration in home prices appears to be a key driver in the worsening cure rate behavior. Due to home price declines, loans that have recently become delinquent have an effective loan to value ratio that is on average approximately 23% higher than those loans that are current on their payments, and are typically over 100%,” the study found.
Economists–and hopefully lenders and policy-makers as well–are discovering that borrowers act very differently when they are underwater. Whether the issue is cure rates or the “strategic defaults” discovered in the recent UofC-Northwestern study, the bottom line is that assuming borrowers will act the same way the did 8 or 10 years is ago is not safe, Lenders who expect a 30 percent cure rate from borrowers, even prime borrowers, may be in for a rude awakening.
Mortgage Truth
Home prices may fall if borrowers in need don’t receive loan mods, but if the re-default rate is ridiculously high, aren’t we better off letting “nature take its course,” instead of delaying the inevitable…after all, the quicker things resolve themselves, the faster the recovery…
Free Loan Modification Kit
Yea its sad in todays times it seems that it makes more financial sense to the lenders to not approve a loan modification for homeowners. At the end of the day its about money and increasing profit and reducing loss, Not helping there struggling borrowers