Loan Modifications - Are They Slowing Down Foreclosures?
September 29, 2009
If there is a mystery about what has happened to all the foreclosures that were to be coming on the market, perhaps loan modifications have worked to reduce the number of actual properties completing the foreclosure process.
Purportedly a loan modification is a change in one or more of the terms of a mortgagor's loan which allows the loan to be reinstated, and results in a payment the mortgagor can afford.
The crucial words are "loan to be reinstated" and "mortgagor can afford".
One of the truly harsh criterion for eligibility for a loan modification has been the need for the borrower to be at least one month behind in the payments and usually at least three months before the lender will accept the application for a loan modification. Many borrowers who have struggled to keep up their payments have found themselves ineligible. Recently there has been talk of lenders being permitted to modify loans even if the borrowers are current in their payments. This might be a step in the right direction of helping both homeowners and lenders. The loan could continue to be producing income to the lender and the borrower would be more likely to be able to avoid foreclosure once the modification was completed.
The media has been publishing data suggesting that the percentage of modifications is a drop in the bucket compared to the number of homes under threat of foreclosure. The government continues to change the rules to encourage lenders to be more proactive, but thus far, lenders continue to have reservations.
It is interesting to note that lenders do not seem eager to foreclose, but they don't seem eager to adjust their loans to turn a non producing asset into a producing asset. If they are willing to reduce the amount of the loan at a foreclosure auction, why not discuss a modification, or for that matter, a short sale, as quickly as it becomes known that a homeowner is in trouble? All the delays just keep the foreclosures increasing when there seem to be procedures that could be beneficial to the recession's recovery?
Thus far the data that is publicized indicate that modifications have not slowed the pace of foreclosures.
If there is a mystery about what has happened to all the foreclosures that were to be coming on the market, perhaps loan modifications have worked to reduce the number of actual properties completing the foreclosure process.
Purportedly a loan modification is a change in one or more of the terms of a mortgagor's loan which allows the loan to be reinstated, and results in a payment the mortgagor can afford.
The crucial words are "loan to be reinstated" and "mortgagor can afford".
One of the truly harsh criterion for eligibility for a loan modification has been the need for the borrower to be at least one month behind in the payments and usually at least three months before the lender will accept the application for a loan modification. Many borrowers who have struggled to keep up their payments have found themselves ineligible. Recently there has been talk of lenders being permitted to modify loans even if the borrowers are current in their payments. This might be a step in the right direction of helping both homeowners and lenders. The loan could continue to be producing income to the lender and the borrower would be more likely to be able to avoid foreclosure once the modification was completed.
The media has been publishing data suggesting that the percentage of modifications is a drop in the bucket compared to the number of homes under threat of foreclosure. The government continues to change the rules to encourage lenders to be more proactive, but thus far, lenders continue to have reservations.
It is interesting to note that lenders do not seem eager to foreclose, but they don't seem eager to adjust their loans to turn a non producing asset into a producing asset. If they are willing to reduce the amount of the loan at a foreclosure auction, why not discuss a modification, or for that matter, a short sale, as quickly as it becomes known that a homeowner is in trouble? All the delays just keep the foreclosures increasing when there seem to be procedures that could be beneficial to the recession's recovery?
Thus far the data that is publicized indicate that modifications have not slowed the pace of foreclosures.
posted by shirley harry at 8:48 AM
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