September 30, 2009
Since the entire idea of loan modifications is pretty much a phenomenon of this particular housing market decline, there may be a reason why obtaining a loan modification seems to be very difficult. The government with its "Hope Now" program and its "Making Home Affordable" program has attempted to encourage lenders to work with distressed homeowners. Seemingly, neither program has been successful at reducing the number of delinquent loans or the number of foreclosures.
Anecdotal evidence suggests that loan modification requirements are still not in line with the actual amount of modification that would be required to keep a homeowner in a financially stable condition. For example: if the value of the home has decreased by 32% (a recent statistic for some areas in Southern California), and if the original loan to value was 100% in 2006, a $400,000 loan would have to be reduced to $272,000 and it would still be a 100% loan to value loan. Then there is the requirement that the borrower show "hardship" as the reason why the present payments cannot be made. Then, if the loan actually was an 80% loan to value, the borrower may be deemed to have sufficient equity and again fail to qualify for any modification.
Loan modifications, at best, are very complex adjustments. Are they to be temporary until value returns? Are they to be permanent for the entire life of a loan?
In many ways a lender who continues on the path to foreclosure and sells the property at the reduced value and clears the books once and for all may understand this process far better than the loan modification process. What still remains a mystery is why lenders have been so slow to work with homeowners on the "short sale" process that could accomplish a clearing of the books and possibly reduce the costs of the foreclosure process. If this process became more efficient, the number of foreclosures might easily be reduced. At the moment, buyers are reluctant to submit offers on short sale listings because of the lengthy wait until they get either approval or disapproval for their offer.
Since the entire idea of loan modifications is pretty much a phenomenon of this particular housing market decline, there may be a reason why obtaining a loan modification seems to be very difficult. The government with its "Hope Now" program and its "Making Home Affordable" program has attempted to encourage lenders to work with distressed homeowners. Seemingly, neither program has been successful at reducing the number of delinquent loans or the number of foreclosures.
Anecdotal evidence suggests that loan modification requirements are still not in line with the actual amount of modification that would be required to keep a homeowner in a financially stable condition. For example: if the value of the home has decreased by 32% (a recent statistic for some areas in Southern California), and if the original loan to value was 100% in 2006, a $400,000 loan would have to be reduced to $272,000 and it would still be a 100% loan to value loan. Then there is the requirement that the borrower show "hardship" as the reason why the present payments cannot be made. Then, if the loan actually was an 80% loan to value, the borrower may be deemed to have sufficient equity and again fail to qualify for any modification.
Loan modifications, at best, are very complex adjustments. Are they to be temporary until value returns? Are they to be permanent for the entire life of a loan?
In many ways a lender who continues on the path to foreclosure and sells the property at the reduced value and clears the books once and for all may understand this process far better than the loan modification process. What still remains a mystery is why lenders have been so slow to work with homeowners on the "short sale" process that could accomplish a clearing of the books and possibly reduce the costs of the foreclosure process. If this process became more efficient, the number of foreclosures might easily be reduced. At the moment, buyers are reluctant to submit offers on short sale listings because of the lengthy wait until they get either approval or disapproval for their offer.
posted by shirley harry at 9:03 AM
0 Comments:
Post a Comment
<< Home