Why Home Loan Modification Efforts are Failing

by Alex Stenback on December 4, 2009

Floyd Norris has up a very good piece on the current state of the loan modification drive, with great insight as to why things are not going so well. 

The article first reveals a problem that might surprise everyone but a banker – Many people aren’t turning in the required paperwork:

“But to make a modification permanent, the banks have to see proof of income, and the borrower has to make three monthly payments of the new lower amount. In most cases, those requirements are not being met.”

You can lead a horse to water.

Also, no matter the “success” of modification efforts, many may be the banking version of a self-licking ice cream cone: Neat, but ultimately useless. 

The money quote:

“It is far from clear that some modifications being granted are really in the borrowers’ interests. Some will be able to stay in homes when they could rent a comparable house for less, and will be so far underwater that they are unlikely to be able to sell the house for years without defaulting on the new terms. It is conceivable that this process is doing more to drag out the foreclosure crisis than to alleviate it.”

 Why Many Home Loan Modifications Fail [Norris, NYT]

{ 2 comments… read them below or add one }

Ed Nelson December 9, 2009 at 7:10 am

I agree with you that the ‘Money Quote’ is key. \It is far from clear that some modifications being granted are really in the borrower’s interests\. When working with their lenders/servicers, homeowners should have an advocate fighting for THEIR best interests… an advocate that will also be willing to give them the truth… that a mod may not work for them. In Minnesota – - that advocate will be their Foreclosure Counselor through the MN Home Ownership Center (www.hocmn.org).

The Urban Institute in DC has also shown that when people work with non-profit counselors, they are 60% more likely to AVOID foreclosure, and their mods were, on average, $454.00 LESS (more affordable) than working on their own. (http://hocmn.blogspot.com/2009/11/foreclosure-prevention-counseling-works.html)

Counselors can ALSO help homeowners take that missing final step – - getting all the correct documentation to the lender. That seems to be where the biggest breakdown is happening.

mike & mary hayek November 5, 2010 at 6:28 pm

my husband fought for over 2 years to get a modification. we sent in all the paper work (all) we were suppose to. we were turned down twice even having sent in all the paperwork in over and over again. now after over 2 years wells fargo has taken over the modification. to our dismay we are paying more now for our house payment than we have for all the 13 years we have been residing in our home. my husband makes $17.33 a hour and i can not work because of a pre exiting condition, i have chronic pain and have been fighting for disability for over 3 years but that is a whole different story. i worked all my life but my dr. said no more in 2006 because my body is riddeled in pain. we have fought to keep our house by sending in everything they have asked for. How can we be approved for a modification and pay more now then we have ever had too!! Then there was a ad on tv for people like us who are having a hard time paying a higher morgage, they told us the goverment has a program that goes by my husbands income. they would pay part of the morgage. they said the goverment has this to offer, we pay so much according to mikes income and the gov. pays the rest. this law firm called the ryan law firm asked us to give them 2 checks and not sign them. red flags came up right away to me and i told my husband NO!! anything that sounds to good to be true is usually bad. this law firm comes out of california we have their name, email and tel. number. I know they also wanted our bank info, social security numbers plus sign a form from a notary they sent to our house. we played dumb and said we need more time to think this over. If anyone knows how to help us with this new modification please please let us know, it would be greatly appreciated. If any one can give us advice and help please help. we have all the info on the law firm that wanted to take our money and watch us loose our home we worked hard for. we know times are tough but someone must know of someone or something that can help us or steer us in the right direction. I will be writing the attorney general on the law firm that is taking advantage of people that are in desperate need of trying to keep there home. please be careful of mean,selfish and dirty rotten people, they make you want to give up on something you have worked hard for and that is not right. mary hayek

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