Modifications are Failing…. (More on the Acronym Soup)

by Tom Vanderwell

Mortgage Officer

Author website

There’s a couple of interesting and yet disturbing points to this report from CNBC:

• over 2/3rds of the people who are currently in the trial period of loan modifications are not going to qualify for the permanent modifications.   Why?   A couple of likely possibilities:  1) They are too far upside down and are looking at it and saying, “I’m out of here.”   2) They aren’t willing to provide documentation of what their financial position is because it would make it evident that they had lied on their loan application and that’s a federal offense last time I checked.
• I had a past customer call me on Friday and said that he was never told that his short sale paperwork had an expiration date (which has now past).   He said it took too much work and he’s not going to do the paperwork again.    I didn’t ask him what his plan is from here, but I think it illustrates the pain and frustration that so many people are feeling in the process.   They just throw their hands up in the air and say, “I give up.”
• If 2/3rds of the loan mods don’t go to permanent status, what do you think that’s going to do to the number of foreclosures?   Yeah, that’s right, it’s going to increase them.

The entire way that the banking industry is handling foreclosures, short sales and loan modifications isn’t designed to encourage participation (or perhaps mandate participation?)   Until we get an organized and systematic way to deal with the facts that:

1. We have many people who took out loans that they never had a chance of paying on time.
2. We have many people who took out loans that are worth way more than their houses are.
3. We have many people who took out responsible loans and have had bad things happen to them and now aren’t able to make their payments.

All three of these require different responses and a different way to effectively resolve the challenges that we’re facing.

If you ask me, the government and the banking industry haven’t figured out the way to deal with them that really works yet.

Tom Vanderwell

P.S. You’re probably asking, “So what should we do?”    That’s a topic for a much longer post(s) and I’m working on some thoughts on that.    They will probably be up on my new site, All Markets Considered, as soon as I’ve got them worked through……

Bank of America: 2/3 of Borrowers May Lose Government Mods – CNBC

Tomorrow the House Financial Services Committee, under the leadership of Chmn. Barney Frank, will grill mortgage servicers as members examine the “response to the mortgage foreclosure crisis.” This is all about how banks are converting all those trial modifications under the government’s Home Affordable Modification Program into permanent modifications……

Mr. Schakett told me that of the 65 thousand trial modifications set to expire Dec. 31st with B of A, a full two thirds of the borrowers, while current on their payments, have not submitted the full documentation required to turn a trial mod permanent under the HAMP guidelines. The trial modification process only requires oral verification of income to begin, but to go permanent, you need to prove your income, submit your tax returns, and basically come clean with all your finances. I’m guessing a lot of folks who took out their initial loans with false or non-existent documentation, aren’t eager to let the government know that…….

Let me just say that I get a lot of email from borrowers, telling me that the banks are holding up their paperwork, losing faxes, messing up modifications and leaving those borrowers in the lurch. I don’t dispute that, but I can’t fully dismiss the banks when they tell me that 2/3 of the borrowers won’t submit the paperwork. I also happen to know that a huge percentage of borrowers being offered modifications are rejecting them. They don’t want to pay. Many are already gone.

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