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]
Related posts:
Equal Housing Lender |
{ 1 comment… read it below or add one }
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.