Several major banks are putting foreclosures on hold while they try to work out loan modifications. I’m not optimistic that it will have much of an impact except to delay some foreclosures, although delaying some foreclosures might be a good way to take some of the downward momentum out of prices as we approach a bottom in many parts of metro Phoenix.
The article from Jack Guttentag mentions why real estate loan modifcations haven’t worked.
An excellent study by Alan M. White provides some indications of what has happened to modifications during this tumultuous period. In a sample of subprime loans he examined, the mortgage payment was reduced in only about half the modifications, and the balance was reduced in very few cases. In many cases, the modification consisted of adding the amounts past due (”arrearages”) to the balance, which raises the payment. It is no wonder that during the annual period he examined, the number of foreclosures swamped the number of modifications.
My opinion is that loan modifications won’t work because home prices have fallen too much. Loan “mods” would only work if a significant amount of the principal is forgiven by the bank.
There is, however, a huge problem with forgiving principal.
If banks forgive some principal for those who haven’t paid their mortgage, then a lot of other people will simply stop paying their mortgages and want a principal reduction too.
That idea could very well spread like smallpox and if it did, it would be the end of the financial world as we know it.
Fortunately, much of Arizona residential real estate is set to bottom out next year. Unfortunately, new government programs could mess that up big time.
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Mark G Cooper 12.20.08 at 11:34 am
Gentlemen,
While I feel you are absolutely right about Loan Modifications and I will not spend time doing them, two other forms of help is out their for clients. I am Mark G. Cooper, the Founder of Cooper Optima Loan Restructing, known as the COLR system. Three years ago, while being the Director for International Development for all of Pacific Coast Mortgage’s broker branch’s but developing Mexico’s finance industry, I was contacted by an Assistant to the US Attorney’s office. They asked me to research sub prime origination, in Arizona. I did as they instructed, basically, my research gave evidence of the following, I would love to give either of you the benefit of my full Marketing Presentation and sign you up a COLR representatives, but you would have to ask.
My research was based off the FBI, Guardian Inc, OFHEO, HUD and Realtytrac and other sources.
“in the past ten years, 90% of all mortgage originated have an average of 31 FEDERAL violations” Federal violations carry a Mandatory $2000 fine each and can increase to $50,000 if they are deemed Major.”
So, my Loan Restructuring procedure and or Loan Rescission, methods are base on the software which is confidential to me and I used to wholesale clients, to produce Predatory Lending Audits, on any files given to me. My intent is to enable my clients and their clients to identify FEDERAL violations with relation to Predatory Lending, TILA and RESPA.
Loan Modifications by definition are not permanent and there fore will revert over time back to the problem which was there to begin with.
Loan Restructures which I do, only, work on the premise that the loans were Possible or actual Bank Fraud to begin with, never should have been originated as written and must be void. A new Loan Restructure must be created and the current Market value is used, period no discussion however an Attorney must “Litigate” on behalf of the data, the identified violations, the Hardship Letter, the Financial and do it with a strong “ARM” with a set answer to the lender, it is this or I will file with the US Attorney General of the US of A. End of discussion.
I feel, Loan Modifications, do not work. I do feel that loans with 3rd Party identified Federal violations should be either “Litigated” by the US Attorney General or by a barred Attorney in the state which the loan originated, justice should prevail and a new loan should be created. So, Loan Restructuring does and is working if the loan can be identified as a Bank Fraud.
Mark G. Cooper
CooperOptimaLoanRestructuring
marksman954@aol.com
480-678-8601
7 star service in a 5 star world!