To Modify or Not To Modify?
February 3rd, 2010 categories: Seller Resource, Short Sales
The sooner the foreclosure issue is figured out, the better for all.
Not just all here in Sonoma County, but better for all people around the entire country. As more foreclosures come on the market, there is more inventory, more low priced inventory, and this causes downward pressure on home prices.
Downward pressure may not necessarily result in home prices falling, but rather, may not allow them to increase as much as they might otherwise. In any event, it is clear that more foreclosures are not a good thing for our current Real Estate market.
Knowing that foreclosures are still an ongoing issue for the United States Real Estate market as a whole, a new federal initiative has been announced that should help the effectiveness of the Home Affordable Modification Program.
The Home Affordable Modification Program
The Home Affordable Modification Program, or HAMP, has up until now been focused mainly on the first mortgages, and homes with first and second mortgages have been tougher to negotiate with according to many. The new federal initiative gives incentives to second mortgage holders to negotiate with first mortgage holders when a loan modification is being negotiated.
Until now, first mortgage holders have been reluctant to lower payments when a second mortgage is involved and the second mortgage is not being affected and the payments remain intact. This seemed to put the entire burden of a modification on the first mortgage holder. In the case of a modification, the entire mortgage obligation is supposed to be no more than 31% of the borrowers’ pre tax income. Is this really fair when the second mortgage holder is in a truly subordinate position? We do not think so, and it is also clear that the government did not think so either.
The second lien holder modification has been in the works since last spring, when HAMP was announced, but has proven to be difficult to implement.
Why has the program been difficult to implement?
Good question. The answer is not so clear, but up until now, the incentives were nonexistent, or not recognized by the second mortgage holders. With little incentive, it proved difficult to “incentivize” second mortgage holders to modify loans in their portfolio.
So how does a program like this get implemented? As is the case in many things, if the largest lender adopts this, then many others will follow. With that said, it was recently announced that Bank Of America, the largest residential lender in the United States, has just adopted the second loan modification. It is believed that with Bank Of America’s adoption of the second mortgage modification, other lenders will follow, which should allow many to stay in their home, and reduce the amount of foreclosures on the market, helping to stabilize Real Estate prices, as discussed above.
It is estimated that about half of all at risk mortgages have second mortgages, so this new program is vitally important, not just to borrowers, not just to lenders, but to us all.
As more news on the Home Affordable Modification Program, and second mortgage modification become available, we will keep you posted.
If you have any questions about Sonoma County Short Sales, Sonoma County Real Estate, or Sonoma County in general, please do not hesitate to contact us.
