Foreclosure Defense Florida

Can’t Get A Mortgage Modification? (You Can’t) Here’s Why. (The Banks Don’t Want to Give Them.)

From an article in the Wall Street Journal…

Number of Foreclosed Homes Will Continue to Soar

Since the start of the recession in 2007, more than five million homes have been taken back by lenders. The Center for Responsible Lending estimates that as many as 13 million more homes could fall into foreclosure over the next five years.

To combat the foreclosure epidemic, the Obama administration created the Home Affordable Modification Program (HAMP) last February. As part of this program, the Treasury Department plans to spend up to $75 billion in financing mortgage “modifications” for struggling homeowners.

Since the program began, more than three million homeowners have become eligible for assistance. In turn, mortgage servicers have reached out to these borrowers, initiating the modification process. Roughly 760,000 homeowners have received loan modifications on a trial basis. But just 31,000 modifications have been made permanent.

That’s a success rate of just 1%. This means that up to 99% of eligible homeowners struggling with their mortgage payments have been unable thus far to modify their loans.

Here’s Why:

A big reason for HAMP’s limited success is that the government is suffocating banks with counterproductive accounting rules. Under current law, if a bank modifies a mortgage it must record the write-down as an expense on its books. For example, if a homeowner’s monthly mortgage payment is reduced by $400 per month for 24 months, the bank has to report that it “lost” $9,600 ($400 times 24 months).

One Comment

  • David Acosta says:

    I’m not sure “suffocating” is the word I would use to describe the federal government pressure on banks to take the write-down. Banks and similar institutions have been resisting taking the hits on their books from the beginning for a variety of reasons. Beyond shareholder pressures, there is the impact on real/perceived liquidity and ability to fund new loans; impact on ability to do short-term borrowing to meet federal reserve lending and other requirements; impact on the institution’s overall valuation; impact on stakeholder / customer perceived stability and confidence, and the list goes on.

    I do not buy that it is the “red tape” associated with accounting rules that is causing the loan mods to slow. These institutions have been kicking, screaming and resisting taking the write-downs on their books from the beginning. Ironically, it is strangely familiar to homeowner’s refusal to believe they have lost real value due to market conditions. Both the institutions and the homeowners have been somewhat in denial. Of course the homeowner gets the reality check much sooner and in a more real way – they get a summons and complaint to face a mortgage foreclosure. Eventually, the homeowner loses the home. Denial, however, by the financial institutions gets propped up by bailout money.

    Go figure.

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