Financing in Solana Beach>Question Details

Conrad Hodgs…, Real Estate Pro in Brentwood, TN

Why are banks promising to help homeowners do loan modifications when less than 3% actually happen?? Are Any banks lowering the pricipal balance??

Asked by Conrad Hodgson, Brentwood, TN Wed Nov 4, 2009

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Clearly lip service.....the real focus seems to be smoke and mirrors, corporate image, red tape, smothered by incompetency, and in the end...........foreclosure!!!
1 vote Thank Flag Link Thu Nov 5, 2009
Hi Conrad, I rec'd this from a friend today:

"Freddie Mac issued their 2209-26 bulletin which has details of the changes in the Home Affordable Modification program (HAMP) forbearance and net present value (NPV) requirements that will be effective on 12/1/09.

More specifically, “if it is necessary to use partial principal forbearance to achieve the target payment as outlined in Guide Section C65.6, the Servicer must apply the new limit on the amount of permissible forbearance, as described in today's Guide Bulletin, to determine if the mortgage is eligible for HAMP.” And “if the U.S. Department of the Treasury (Treasury) NPV result is negative $5,000.01 or lower, the mortgage is ineligible for HAMP and the Servicer should consider the borrower for another foreclosure alternative.” Freddie also told their clients that at this point all servicers must now use Workout Prospector to evaluate all borrowers for a modification under HAMP."

Also, there's another reason why Mods are not happening. See the "5) Ineffectual Loan Modification Program" heading of this Blog post I wrote back on 9/26/09:
"Coming to a neighborhood near you: REO Shadow Inventory"…

Best, Steve
0 votes Thank Flag Link Fri Nov 6, 2009
Banks are offering loan modifications for several reasons. 1. The government is putting pressure on them to do it and is offering them financial incentives to "help homeowners" 2. They can make money off the homeowners by adding in legal fees, past due balances and interest. 3. Loan Servicing Companies are making record profits off deliquent loans.

Many people are confused or mis-informed about what a modification is. A modification in most cases is designed to roll in a past due balance and get the customer current on their loan. Period. If the bank can move the owner to a loan that is more affordable and makes financial sense TO THE BANK then a modification may be possible. The bottom line though, is the majority of homeowners in distress simply bought more home then they could afford.

Most modifications are going to result in a higher monthly payment for the owner because the loans being modified are typically interest only ARM's. When you roll in taxes and principal the payment goes up.

The answer your question about reductions in the principal balance is yes. Some investors are willing to walk away from the balance as a last resort. I see this on second loans where the investor is going to get nothing from a foreclosure anyway. I have not seen it done in situations where there is only one loan.

If you have a specific situation you'd like to bounce ideas off of give me a call. My cell is (951) 966-1417. I find this whole market fascinating. BTW, all the people I know who modified their loans last year are in default again this year. Now it's job losses adding to the pressure.

Beth Walsh
Tarbell, Realtors
Inland Empire
0 votes Thank Flag Link Thu Nov 5, 2009
Loan mods can be done by lowering the rate, extending the term or lowering the balance. The banks are so overwhelmed with the Mods that they can't keep up. It's a freakin' train wreck. So, banks are picking and choosing who to help and they tend to help every 3rd person probably.
0 votes Thank Flag Link Thu Nov 5, 2009
I have not run across any principle reductions but I have seen mods done as low as 1.75% interest only for 5 years. It is kind of hard for a lender to give up future value when they have given a loan on the property. What happens 5 years down the road when the property that was bought with a loan at 300,000 and had a reduction to 225,000 sells in 5 years at 275,000? Why give a lower payment and future value to someone?

We The People are already digging in our pockets enough to help first time buyers, people that can not make payments, and ad nauseum. Please do not dig a hole for us that my great grand kids will never dig out of.
Web Reference:
0 votes Thank Flag Link Thu Nov 5, 2009
Interesting question I 've thought the same thing as well. Here in our relatively strong real estate market, I haven't seen much evidence of lenders doing work-outs or mod's. How's your market? I've not heard of banks lowering a principal balance, a few forgiving a back payment or two perhaps
0 votes Thank Flag Link Thu Nov 5, 2009
It seems like the Banks are saying Yada Yada thanks for the bailout, yada yada we care, yada yada the Loan Modification is in the mail.......

Please wait in line, a teller will be right with you ; )
0 votes Thank Flag Link Thu Nov 5, 2009
The devil is in the details. The stated they're willing to help people, but didn't specify which ones.

Yes, some banks are lowering the principal, and others use other methods (negative amortization, lowering rates, etc) to modify loan terms.
0 votes Thank Flag Link Wed Nov 4, 2009
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