It turns out that in 90% of the loan mods the principal balance actually WENT UP!! The banks are rolling all the late fees, back payments and other fees into the principal. If that's not bad enough, in 27% of the mods peoples payments actually went up. What the f#@k kind of loan mod is that? I'm not a big fan of loan mods. I don't really believe people should be rewarded for reckless behavior. But I do believe if we are going to allow loan mods then they should be done is such a way as to actually benefit the person. It makes not sense to do it if you're not increasing the chances of being repaid.
Homeowners who were hoping for lower payments are discovering to their dismay that lenders roll late fees, back taxes or other costs into the principal, sometimes turning a difficult payment into an impossible one. That is one reason that many reworked mortgages are sliding back into default.
Of loans modified from Jan. 1, 2008, through March 31, 2009, monthly payments increased on 27% and were left unchanged on an additional 27.5%, according to a recent report by banking regulators. Many modified mortgages fall delinquent — 25% to 40%, depending on the type of mortgage — often because of homeowners' loss of income or additional outstanding debt, according to a report last month by CreditSights, a financial research firm.
"Payments have gone up …. (and) the payment relief can last for the first few years and then go up (again)," says Alan White, assistant professor of law at the Valparaiso University School of Law in Valparaiso, Ind. He has studied the subprime mortgage situation for 10 years. "(The lenders) focus on today and not on the future." Even under the Obama plan, they don't focus on permanent debt reduction, White says.
The majority of borrowers who've gotten mortgage modifications have seen their overall principal balance go up, according to an analysis by CreditSights and ICP of about 660,000 mortgages modified this year. In about 90% of the modifications, the principal balance after a modification was larger, CreditSights said.