Surprise! Loan Modifications are not working

http://www.mercurynews.com/realestatenews/ci_12789161?source=email

I cannot say it is surprising that the banks are not providing enough loan modifications to stop the number of foreclosures that are looming in the not too distant future, with the continuation of high unemployment rates here in Silicon Valley and the rest of the country. The stated goals of the top executive at the lending institutions (of helping keep homeowners in their homes) and the negotiators who directly interface with the borrowers often seem at odds; I don’t know if it is this way by design or by circumstances.

As a short sale agent, I speak almost on a daily basis with loss mitigation negotiators who work in the same departments as the loan modification folks and let me tell you, they are overwhelmed and not in the frame of mind to think about your files to give them just consideration that each hardship warrants. If you don’t know how to deal with them, they will walk all over you and some have been known to flat out lie to the borrowers. Depending on the size of the lender and its loss mitigation department, each negotiator may be working from 200-500 files! Now how much consideration do you think a negotiator can give each file or consider the circumstances when you are file number 301 out of 400, unless they absolutely have to? Do you wonder why you hear horror stories about contacting loss mitigation departments and having to submit documents over and over or waiting on the phone all day to talk to someone?

Another thing to consider that the article does not mention is this: when the lenders do provide some sort of loan modification, it is often not enough to get the borrower out of their financial difficulty. You hear this quite often.

Let me give you a real life example of a past client. She had a combination of hardships that piled on top of each other rather quickly: relocation due to husband’s job, two unexpected medical complications that resulted in huge bills, and a pay cut to keep her job. All of these things and facing an upside down mortgage made her reach out to her lenders (both the same institution) for a loan modification. She needed to reduce her mortgage payments by about $1,400 to be able to continue making payments viable. The primary lender gave her a reduction in rate and a saving of about $700 per month, but added an additional $15,000 which was wrapped into the loan as “interests, costs and expenses” and re-amortized over 40 years. The HELOC (Home Equity Line of Credit) flatly denied any modification when the first thought she warranted a modification. After speaking with her CPA and lawyer, she contacted me about doing a short sale.

Where was the “modification” from the “Home Retention Group” when they simply wrapped the reduction cost back into the loan and offered to reduce an amount that was not consistent with what the borrower needed due to her pay cut? They knew from looking over the financial statement what the monthly deficiency was, yet offered to reduce it by less than what was short? Don’t they know, this is a recipe for pushing their borrowers into foreclosures; or are the negotiators so swamped with files, they simply don’t care. Either way, these types of loan modification are not working out for the borrowers. The lenders lose money when the borrower stops paying and go on the foreclosure track. Why not hire more people in their loss mitigation departments to reduce the work load and have the negotiators really look into people’s financial situation and give them the necessary help they need to keep them in their homes? That would truly be a win-win for the lender and the borrower and consistent with their executive’s stated goals to the congress and to the general public.

Steve Mun, Silicon Valley Realtor
www.stevemungroup.com