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Loan modifications that don't help
Mortgage troubles
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KAI RYSSDAL: A key part of the Obama administration's plan to turn the housing market around hinges on restructuring mortgages for people who are in trouble. It stands to reason, right, if a homeowner can't make payments and the lender comes in and substantially reduces the monthly amount due, then you'd think the borrower has a better chance of staying current with the mortgage. And so a better chance of staying in the house.
A study released today by federal banking regulators confirmed that that is what happens. Unless it doesn't. From Washington, Tamara Keith reports that most of the loan modifications made last year didn't stick.
Tamara Keith: Let's say your adjustable rate mortgage adjusted right out of reach. You call your lender hoping for some help, a loan modification. Well, there's a whole lot of things the lender might offer. It could cut your interest rate a couple of points, saving you hundreds a month. It could extend the term to 40 years. It could even reduce what you owe on the home. But more often than not lenders have been offering payment plans that don't cut monthly payments. More than 30 percent of modifications last year actually lead to higher payments. David Barenbaum is with the National Community Reinvestment Coalition.
David Barenbaum: Many of these modifications were not affordable to the consumer and ultimately because they were unsustainable will still lead to default.
Which misses the point. But the good news is that trend appears to be shifting. In the latest data crunched by federal regulators, at the end of last year, there was a jump in the percentage of loan modifications where monthly payments were trimmed.
Grivetta Gardeneer: What we see is that, that certainly works.
Grivetta Gardeneer oversaw today's report for the federal Office of Thrift Supervision. The report found that cutting monthly payment by more than 10 percent is what works. Those borrowers were far less likely to get behind again.
Gardeneer: If the payments are actually reduced, then the re-default rate is lower.
Obama administration officials say the point of their new foreclosure prevention plan is loan modifications that reduce payments.
In Washington, I'm Tamara Keith for Marketplace.
It is estimated that Obama's plan could benefit 8 to 9 million homeowners from the new modification procedures. So how do you know you qualify for the Mortgage Modification? Check the website <a href="http://obamamortgage2009.blogspot.com/">http://obamamortgage2009.blogspo... to see if you qualify. I was also in trouble and I am glad I did check it before I talk to my mortgage company and it helped - John Mayer, California
David, I agree with what you have to say. Other scenarios that Mr. Pannbacker may consider are those who own homes, have an adjustable rate mortgage, or a balloon payment, and although they are current on their payments, although they have great credit, although they have a great job, can't refinance because the value of their home has gone down because of the market, because of their neighbor who did default on their mortgage due to poor financial practices. Now they are faced with a balloon payment, or an interest rate that is going up and wished they could have seen this coming 3 or 5 years ago. Some of these people are investors who have multiple properties who are now faced with multiple properties in the same scenario. They are faced with a property that has dropped in value, a loan that has gone variable, and no way to refinance.
I guess we could go back 5 years and tell them they shouldn't have gone with an ARM, but I hate at this point to be the one who claims to have 20/20 vision. Its easy to look back.
The thing about a loan modification is that this is helping people who want to stay in their homes, who want to pay back their debt. The loan modifications are for the people who don't want to walk away from their home. By modifying the terms the borrower, and the lender, continue in their agreement. The borrower gets to stay in their home and fulfill their responsibility. The investor gets to keep making money, doesn't have to take the home back, home values don't drop in the area, and both parties have a new agreement to move forward.
What this article points out is that the lenders who are failing to understand the goal of a modification are now starting to realize they have done their borrowers wrong, and themselves wrong. I spoke with a women yesterday whose lender "modified" her loan. Her modification consisted of the lender adding her missed payments to the end of the loan which raised her payment by $80 a month. The fees for this and penalties they charged brought her payment up monthly by a total of $200.
This "modification" did nothing for either party. This is a great example of the lender looking out for themselves without the foresight to see the end goal and that is to modify the terms of the loan to the point where both the borrower and the lender move forward. This women is now defaulting on her mortgage.... again. I truly hope this lender is not surprised.
David, I agree with what you have to say. Other scenarios that Mr. Pannbacker may consider are those who own homes, have an adjustable rate mortgage, or a balloon payment, and although they are current on their payments, although they have great credit, although they have a great job, can't refinance because the value of their home has gone down because of the market, because of their neighbor who did default on their mortgage due to poor financial practices. Now they are faced with a balloon payment, or an interest rate that is going up and wished they could have seen this coming 3 or 5 years ago. Some of these people are investors who have multiple properties who are now faced with multiple properties in the same scenario. They are faced with a property that has dropped in value, a loan that has gone variable, and no way to refinance.
I guess we could go back 5 years and tell them they shouldn't have gone with an ARM, but I hate at this point to be the one who claims to have 20/20 vision. Its easy to look back.
The thing about a loan modification is that this is helping people who want to stay in their homes, who want to pay back their debt. The loan modifications are for the people who don't want to walk away from their home. By modifying the terms the borrower, and the lender, continue in their agreement. The borrower gets to stay in their home and fulfill their responsibility. The investor gets to keep making money, doesn't have to take the home back, home values don't drop in the area, and both parties have a new agreement to move forward.
What this article points out is that the lenders who are failing to understand the goal of a modification are now starting to realize they have done their borrowers wrong, and themselves wrong. I spoke with a women yesterday whose lender "modified" her loan. Her modification consisted of the lender adding her missed payments to the end of the loan which raised her payment by $80 a month. The fees for this and penalties they charged brought her payment up monthly by a total of $200.
This "modification" did nothing for either party. This is a great example of the lender looking out for themselves without the foresight to see the end goal and that is to modify the terms of the loan to the point where both the borrower and the lender move forward. This women is now defaulting on her mortgage.... again. I truly hope this lender is not surprised.
While I agree with Mr Pannbacker's sentiment that people should be held responsible for their actions, he should realize that not everyone with mortgage trouble is there because they bought beyond their reach. Some of us have affordable, fixed-rate loans on mortgages that are not upside down but who are in trouble anyway because the downturn in the economy has squashed our jobs. As someone who has "played by the rules", it is disheartening to face bankruptcy when the bankers whose pillaging in large part caused this mess get off with million dollar bonuses. In a usual economy, our recourse would be to sell our house and wait until our job prospects improve. Because of the actions of investors, bankers, and a lot of ordinary people who were on-the-make in the housing run-up, that option is taken away from us. The govt stepping in to provide an alternative seems viable to me. Now if we could just get Countrywide to return our calls about the Home Affordable Refinance program, we might be able to survive this crisis.
Honestly, it hardly seems to be governmental business whether homes foreclose or not. It's not 'cruel' to say that any more than it's 'cruel' to say someone should take responsibility for their own actions. People who bought too much house or misused debt are going to suffer for that. If they never do, our culture will never get over its love affair with debt. The lasting public interest is in getting back to a savings-based instead of a consumption-based economy. The savings-based economy grows over time. The consumption-based economy is doomed to consume its own capital and go into poverty.
