rssHere’s Why Loan Mods Don’t Work: Borrowers End Up With Higher Payments
Wednesday, September 16, 2009 at 8:58 am
- 10 Comments
Ever wonder why loan modifications haven’t become the silver bullet that would solve the foreclosure crisis? Via Patrick.net, USA Today explains in simple terms a phenomenon TWI also has noted, when it comes to loan mods: Borrowers who can’t afford their mortgages and go looking for relief wind up with higher — not lower — payments.
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.
Yep. There’s a big difference between writing down the loan balance on a house, and merely setting up an “extend and pretend” repayment plan. If you can’t afford the house now, you’re probably not going to be able to afford it later, especially with all the new fees added on.
The problem is the same one that has plagued loan modifications from the start: Lenders don’t want to write down loan balances. There’s no cramdown provision in bankruptcy court to force them to do so, thanks to opposition in Congress and inaction by the Obama administration.
Yet, as loan modifications fail to stem the foreclosure crisis, the government continues to offer financial incentives to servicers and calls them to Washington occasionally to give them a hard time about not doing more loan mods.
And in the end, here’s what we’re left with, according to USA Today:
“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.
If you’ve ever wondered why the foreclosure crisis doesn’t seem to be easing, despite the government’s vow to help homeowners, loan mods that actually increase a borrower’s monthly payment are an obvious reason why.
10 Comments
Pingback posted September 16, 2009 @ 9:17 am
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Pingback posted September 16, 2009 @ 9:19 am
[...] Late Fees, Lenders, Mortgages, News Sources, Phenomenon, Silver Bullet, Twi, Usa Today News Sources wrote an interesting post today onHere’s a quick excerptEver wonder why loan modifications [...]
Comment posted September 17, 2009 @ 12:24 am
I also write articles about loans, loan modifications, housing industry newsm etc. I've written several articles about the loan modification programm and most recently about the “Trial payment” structure that the HAMP program has taken. Readers I am following are reporting to me that banks are offering 3 month trial payments, which are supposed to be turned into 5 year payment modifications, but they get nothing in writing from the lenders, and are scared to death of what the lenders might be reporting to the credit bureaus. Also, because they get nothing in writing, they have no idea what the new principal balance on their loans are. This is really scary stuff that is going on. We all need to keep writing.
Comment posted July 6, 2010 @ 6:56 am
I also write articles about loans, loan modifications, housing industry newsm etc. I've written several articles about the loan modification programm and most recently about the “Trial payment” structure that the HAMP program has taken.
Comment posted July 25, 2010 @ 8:48 am
I also write articles about loans, loan modifications, housing industry newsm etc. I've written several articles about the loan modification programm and most recently about the “Trial payment” structure that the HAMP program has taken.
Comment posted August 4, 2010 @ 6:25 am
no wonder why the gov't plan didn't help much!
Comment posted September 6, 2010 @ 6:32 am
YOUR ARTICLE IS ABSOLUTELY CORRECT: THE OBAMA ADMINISTRATION AND THE BANKS ARE ON A COURSE TO WEAKEN OUR COUNTRY. THEY ARE TERRORISTS IN DISGUISE. WEAKEN THE HOME AND YOU WEAKEN OUR ECONOMY AND THEN WE BECOME PREY TO THE GREEDY WORLD POWERS WE'VE BEEN SOLD OUT TO:
OUR TAX MONEY HAS BAILED OUT THE GREEDY BANKS AND SOME AUTO GIANTS, BUT WE ARE LEFT WITH MORTGAGES TO OUR OVER VALUED HOMES WITH THOUSANDS OF SUBPRIME LOANS: THE BANKS AND GREEDY WALL STREET PEOPLE HAVE BEEN PAID BY THE OBAMA ADMINISTRATION TO BAIL THEM OUT. BUT WE ARE STILL JOBLESS AND HOMELESS. WHAT A BULLSHIT SITUATION TO BE IN. LAND OF THE FREE AND HOME OF THE BRAVE. WELL NOW ITS LAND OF THE THIEVES AND HOME OF THE HOMELESS HA HA HA.
Comment posted September 16, 2010 @ 5:49 am
Banks made you believe they could help and had you go through a modification, knowing all along they would deny you. They would say they didn't get this fax, or that fax, etc. Many of the same stories from home owners. Banks do not want to modify. They will allow foreclosure or short sale, and get their loss from the insurance company which I believe is AIG. Oh yeah, who bailed out AIG? The government.
Comment posted September 16, 2010 @ 5:57 am
I wish this country would concentrate on saving the American family homes. The government bailed out the banks, now why aren't they monitoring the money to be sure it keeps people in their homes and restructures their loans?
This home situation when it began was presented to Mr Bush, (news videos posted dates on Youtube prove it), then with Mr Obama, yet, neither presidents cared/cares to help the people restructure their homes so they can stay in them. Instead, the mortgage companies get their loss from their insurance company which the government bailed out, and,,, people who are not citizens of the USA are coming here and buying up all the commercial real estate and condos, etc.
Hey, same with trying to get a loan for a small business. Prior to 911, the only way to get a small business loan is if you were from India, Pakistan or some other country. No American especially a white American male could get a business loan. The proof was all the kiosks in the malls across America.
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