Loan Modications That Don’t Work
January 1st, 2010 categories: Seller Resource
With all of new news about loan modifications we have heard for the past year, Congress recently released numbers about how the plan is working so far. Let’s just say the plan has had time to gain momentum, and it looks like it needs some revision.
Currently, only 4% of troubled homeowners have actually received some sort of permanent loan modification. 4%…wow…what an underwhelming, anticlimactic number. The actual number of people who have received long term loan modifications reported was 31,382, and a nearly equal number, 30,650 were denied long term loan modifications.
Why have so many people been denied long term loan modifications? The answers given were 3 fold:
· Not making payments on time
· Bit submitting the necessary paperwork (more on this in a minute)
· Not qualifying for various reasons (lack of sufficient income was the most common reason given)
So with a nearly 50% rejection rate let’s take an extremely high level look at the process.
1. The homeowner realizes they are in trouble due to some financial hardship.
2. Paperwork is submitted to the lender documenting this hardship, and a complete disclosure of all finances is given.
3. The lender then decides if they will grant a temporary loan modification to the borrower.
4. If the borrower is able to make 3 consecutive payments that meet the new terms of the loan modification, the loan is supposed to be permanently modified to those terms.
Seems pretty easy huh? Again, the process was described in an extremely high level fashion for simplicity, some details may have been deleted. In practice, many are finding it is not so easy. Banks are blaming the borrowers for incomplete packages, and the borrowers are blaming the banks for losing paperwork is dragging their feet in the decision making process. Many borrowers state that they fax, refax, and even rerefax (is that a word?) to the lenders, and the lenders claim they never receive the paperwork.
Is there any good news? Of course there is. The number of troubled borrowers in trial modifications stood at 697,026 at the end of November 2009. This number is up from 650,994 at the end of October. The growth (7.1% month over month growth to be exact) shows that lenders may be fixing the process, or more willing to modify loans. In either case, we see this as positive news for loan modifications.
Congress has told servicers to have more transparent conversion numbers as well, with updates of how many have applied for loan modifications, how many received loan modifications, how many were denied loan modifications, and what the reasons were for denial were. Congress has said it will dispatch a “SWAT Team” to the top 7 mortgage servicers, and this SWAT Team will break up any process logjams that will allow for more help to be given. This is also good news…too bad it took congressional oversight to show the process is not working.
If you have story about your loan modification, whether it is happy story, or a horror story, we would love to hear about it. If you have any tips for people going through the process, please pass those along as well. After all, as soon as we fix the mortgage crisis, Sonoma County, California, and the rest of the country will be better off.
If you have any questions regarding loan modifications, Sonoma County, or Sonoma County Real Estate, please do not hesitate to contact us. We look forward to hearing from you.
This article was contributed by Chris Ingram.
