Tuesday, September 15, 2009

Kick them when they are down

Mortgage mods! Turns out the banks are once again taking advantage of the mediocris populus. The average Joe is getting shafted again with these mortgage mods. Many of us know these mods are simply a way of saving the banks from insolvency. They are a way for the banks to stretch the losses out over a manageable period of time. But did any of us realize just how bad most of these mods are?

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.


Tens of thousands of financially strapped homeowners who have asked lenders to lower their mortgage payments are instead winding up with higher monthly payments and larger debts on their homes.

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.


FairEconomist said...

To be fair, these are mods before Obama's program kicked in so we may see much more reasonable mods in the future. This does show banks are not going to do mods truly designed to keep people in their homes on their own.

Rob Dawg said...

It isn't about the borrower. It has never been about the borrower. It is always and only about the banks.

Adrian Smith said...

Every bit of "help" so far has been all about the banks. We've been duped into panicking about SOCIALIZED HEALTH CARE to bother noticing what is really happening though. Confound and distract, as per usual.

James said...

President Obama’s loan modification plan is meant to rescue the housing market and restructure the current mortgage plan. The new plan is designed to aid struggling borrowers during the current time of dipping property values. The Obama administration aims to rectify what the Bush government overlooked regarding foreclosures jeopardizing the average homeowners.

The efforts so far, however, have got little footing. To modify a loan the lender will need to modify the mortgage structure of a troubled borrower. Reducing the principal amount that the borrower owes would mean that the homeowner would repay less money back to the lender or the bank over time. Hence it is not surprising that lenders and their representatives rarely agree to modify the loans as that would mean reduced income for them. Although the loan modification program offers incentives to change mortgage terms it does not compel lenders to reduce mortgage rates. Consequently, the loan modification plan is not proving to be of much help in the foreclosure crisis.

Todd said...

Oh come on now. You folks don't really think that Obama is going to wave his magic wand fix this mess do you? The only way this is going to go away is to get everyone who is underwater on their mortgages out from under them. There just isn't enough money to bail everyone out (although with as much money as the Feds have been printing the past several months one might believe that to be the case).

The only logical way to fix this is for the banks to get in gear and start foreclosing on all of the people who can't make their payments and start selling off all of the houses they are sitting on. Of course this isn’t a very pleasant idea but all that these mortgage mods do is put people in a situation where they are permanent renters with longer terms and temporary lower interest rates. Most of these people will be better off financially when their albatross of an underwater mortgage is removed from their necks and they are returned to the realm of renting. Also, as the article states, oftentimes these unfortunate people end up with even higher payments!

The question is, will the powers that be keep picking on this Band-Aid they have placed over the housing market or will they get wise and tear it off and get it over with?

Health and Beauty Care said...

This is so strange. Mortgage modification was supposed to be a great benefit for the people in housing crisis. However, it seems it is for bank's benefits.
What is the point, if the principal balance after a modification went up?
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