Sunday, May 30, 2010

Modification failure - Increased foreclosures are blight on US economy

Please retweet this blogpost if you find it helpful: government, mortgages, homeownership and bank loan modifications

WOW: just when you've heard it all, you hear yet again another sad story! Of course, word on the street is that BAC (bank of america) and CHASE are THE WORST at providing modification loans. This is just what you hear, I have no actual proof it is so. Reputation means a lot, especially if you have strong competition. There are many stories of how banks are losing their reputation and maybe the following scenario, told to me by a friend, can help explain why.

STORY: A women has huge, REALLY nice house. In Arizona you hear about mother-in-law houses, but rarely see them unless in upper class neighborhoods. This house had the smaller house on the property with her huge nice house, these smaller homes are usually referred to as mother-in-law homes. Woman has about 180K ready to pay down mortgage which has become delinquent. The bank will not accept it. NO, YOU OWE 350,000.

REMEMBER: Modifications normally try to lower payments but put the difference on back end of loan or do tweaking to make payment lower - you still owe the whole amount including past due... so your mortgage principle rises and so does your payment eventually. Sometimes with a balloon payment at the end. Back in 2008 loans were modified at a rate much lower than today, the programs were just starting up and it was common to have a payment increase immediately as result of the "modification".

ZOWIE: Today's number of modifications are appalling with many not even allowed to actually apply for the modification. NACA seems to be a name for getting help, the NACA name comes up over and over again in conversations with those affected by delinquencies. NACA has lawyer referrals, and free forensic audits. HOPE is another agency that is supposed to be helpful - if you can get through to talk to someone.

Back to the story: The woman offered to pay a lower amount, pay part of the past due or to modify, but bank would not work with her at all. So the bank would not allow the 180, 000 payment, would not modify and would not lower principle and allow house payoff at 180,000. Instead the bank foreclosed and eventually sold the property with acerage for 80,000. Does that even make sense to you? NO, I do not know how they had 180,000! Sometimes people sell a second property or get loans from relatives; others cash out retirement or life insurance.

PARALLELISMS: Our home will sell for about 100-150K with low payments. IN fact our interest of over 8% will be lowered to 3.69 or so and some will qualify for government down payment assist of a few thousand dollars (something we have NEVER had) and the house will be repaired if needed. The payment will be at least 2/3rds and maybe more like 70% lower than our payments were. And while we think this house will sell in reasonable amount of time; we see houses all over our area that have sat vacant for over a year. Many homes are vandalized and many homes are targeted as a hang out for teens or for squatters.

NEWS: For an interesting read, check out this article on New York Times website which carries the following quote within the article:

"Sixty percent of modifications undertaken by banks in late 2008 were in default a year later, according to the latest Mortgage Metrics Report compiled by the Office of Thrift Supervision and the comptroller of the currency.

Many of these private plans either kept the payments the same or increased them. Inevitably, those mortgages suffered the highest failure rate: about two-thirds of the borrowers defaulted again.Loans for which the payments were decreased by at least 20 percent failed at a slower but still significant rate of about 40 percent"

PROGRESS?: Banks are the primary block to lowering principle. And yet the process they go through robs cities and states of tax revenue and increases crime. A true blight on society - but banks don't care. You think they care? Call your congressman today if you care about the economy or the societal impact of foreclosures. The rate of foreclosures is not down - it is up!

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