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AP - Bank owned properties are everywhere
What has happened to the HOPE initiative, and the federal loan modification program? According to CNBC this morning, the 5 largest banks, led by Bank of America, Wells Fargo, JP Morgan Chase, and Citigroup, are underperforming their smaller bank rivals in participating in getting loans modified to help curb foreclosures. The excuse these banks are using is the demand is too big to keep up with. Hello - have they not heard that there is a glut of people out there looking for work who could be hired to help them keep up with demand?
But the truth has been exposed in research done by the Federal Reserve Bank of Boston. Recent studies show that the big banks do not want to participate in the modification process because they will lose money, while foreclosures will ultimately make them money. Why would a bank want to modify your loan to a rate of perhaps 2% (to help you out), when they can foreclose, resell your house, and charge 5+% to a new buyer, and collect all those bank fees (origination fee, underwriting, processing, etc) during the loan process as well?
The $75 billion HOPE program was set up as an incentive to banks to help out homeowners and stop the bleeding of home values. Here's how it was supposed to work:
1. Banks receive $1000 for each loan modified
2. Banks receive an additional $1000 per year, for the first 3 years, that a modified loan stays current.
3. The borrower must be at least 60 days late on loan payments to qualify for modification under this program.
Here's where this incentive process has backfired.
If you, Mr./Ms. Homeowner have managed to stay current, in spite of hardships (perhaps you are draining your IRA), you don't qualify. If you are delinquent, you are a poor risk. If you are a poor risk, it is perhaps unlikely you will be able to keep your loan current, even if your loan is modified, so the banks will not collect the extra $3000 incentives. So - what loans are being modified? The people in the least amount of trouble are getting modifications approved.
Still, to date, only approximately 225,000 loans have been modified under the HOPE program. (This is only 9% of those eligible, according to a CNBC report yesterday). Considering there were almost 900,000 foreclosures in the first quarter of this year alone, I would call this program substantially less than a success - wouldn't you?
According to Larry Summers, Director of the National Economic Council, in his interview on Meet the Press last Sunday, it is estimated that only 500,000 loan modifications will be completed by the end of this year. There are those, even within the Obama administration that are proposing that the $75 billion funding be used to make low interest loans directly to those in trouble, rather than directly to the banks.
What do you think? Please send me your comments, and I will forward them to the powers that be. Perhaps if we get enough input, we, the people, can come up with a solution that might work?
If you enjoyed this article, take a look at this one which shows you tips and tricks to navigate the modification process, and even how to potentially delay or prevent foreclosure, or click here for the story about one unlucky Wells Fargo who has been trying to get her loan modified.
Best regards,
Shelby
http://www.shelbytncmortgage.com
Comments
The banks are not interested in helping the home owners because they loose money. My house is under value, originally apprised at 375,000 now valued at 260,000. I can not refinance because of this situation. My wife is being laid off in a month. I have to be delinquent for 90 days to qualify for the loan modification program. Based on my assets - savings, IRA, bonds, it will be at least two to three years before I can be in that position. Should I really drain all my backups or walk out of the worthless mortgage? I am looking for a refinance at lower interest rate to save the house. The rates are low but there are not any banks willing to refinance the house. I hope the policy makers wise up and start propping up the home owners directly instead of private entities. The Government will not loose any money as it is only aiding the refinance. The current loan modification scheme is a drain on tax payers with money going to lenders and servicers.
The ultimate truth is that banks are not moving fast enough. Homeowners must be champions of their own war to save their homes. Homeowners need persistence and a step-by-step process to a successful loan modification: www.preventingforeclosure.org/2008/10/how-to-modify-a-home-loan/
To Preventing Foreclosures - thanks for the link to your website. There are some helpful hints there.
To Floridian
I don't have anything close to enough information to really answer your comment. But, the bottom line in qualifying for a modification is that you have to show that you can actually carry the modified payments. With your wife losing her job shortly, what rate would it take to be able to carry a mortgage?
Have you checked to see if your loan is owned by either FAnnie or Freddie? It is possible you might be eligible for a HARP loan, but again, I don't have enough information to give you any advice about the best solution for you.
Shelby, I love your articles, they are very informative. In your last paragraph you have "low interest lows" when you mean "low interest loans." Keep up the great articles!
My husband keeps asking if we can refinance our 18-month old house to a lower interest rate. We could, if we time it right and the interest goes to 4.5% as we have a good 5.5% 30-year loan with 20% down. But we bought at the height of the market and I'm betting it would be hard to appraise at a price that still keeps us at 20% equity. Our loan is under Fannie Mae. That would mean either putting in $50,000 or seeing if we qualify for a government program. Since it would be a matter of timing to grab the lowest interest rate and get all the ducks in a row, I think we'll just have to pass and be grateful that we are able to make our mortgage payments as is. In a regular market, we'd have no trouble refinancing.
Dear Phantom Spell Checker,
Thank you for the spelling correction and the compliment. I'm glad you enjoy my articles.
Since your current loan is Fannie owned, you do qualify for the HARP refinancing program, where you can get a loan for up to 105% of the value of your house. I'm not sure if this will help you, but I would think it would, depending on where you live.
As for locking in that 4.5% rate, I have a list of clients myself who want that rate. I'm not sure that we'll see 4.5% again. We actually saw it twice this year, but each time for just a matter of an hour or so, before it disappeared. The only way to be able to get a lock on that rate is to have your loan application submitted and approved, so when the rate hits, it can be locked.
Unfortunately,lenders are no longer allowing us to lock a loan until it is pre-approved (including an appraisal and all). Email me directly if you'd like to discuss your options more at shelby.tnc@comcast.net.
Thanks again.
Shelby, you're on the right track with this story. THe banks are also afraid to modify loans as they can be sued by the holders of the mortgage backed securities. Countrywide just found this out the hard way.
Also, many banks are pointing to the Federal Reserve Bank of Boston study that "showed" loan mods don't work. For why that study was misleading, read here: drewsmortgagenews.blogspot.com/2009/07/are-loan-modification-programs-working.html
Hello Shelby,
I recently applied for a loan modification with my bank Homestreet Bank. I was denied a modification because of "lack of reportable income." I wouldn't be applying for a loan modification if I hadn't experience a change in "reportable income." I have been working as a union laborer for the last 8 years making a very livable wage. I spent 7 months of last year laid off, exhausted my unemployment benefits, and destroyed my saving account. I did however remain current on my mortgage payments. I managed to find a non union job this january and have been working full time. Unfortunately my current wage is half of my former wage. Judging by everything I've read about the hope program, it would seem like I would be an ideal candidate for a loan modification. My origingal loan is backed by fannie mae, i'm working full time, and I have an impecabble payment history with my bank. If i'm not eligible, who is? Do I need to destroy my credit score before I'm eligible?
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