rssWhen Loan Workouts Don’t Really Work
Thursday, July 03, 2008 at 11:36 am
- 6 Comments
Can we just stop the madness now and come out and say it – voluntary loan workouts aren’t doing much of anything to stem the mortgage crisis? Hope Now, a private sector group assembled by the Bush administration, released its latest numbers on Wednesday and, although they were, well, kind of awful, the Hope folks did their best to spin them. Sure, the number of workouts declined in May, the group said. But they’re on track to complete a total of about 520,000 workouts in the second quarter, the highest since the program began.
Of course it all depends on how you define “workout.” If you earn a modest income and you’ve got an interest only loan that recently reset so that your mortgage payment totals close to $4,000 or so – something not atypical these days – you need your loan modified entirely, the terms changed from top to bottom. You’ve got to convince the lender to reduce the interest rate on the loan or to convert it to a fixed-rate mortgage. That’s a true loan workout.
That’s where Hope Now was supposed to come in. The alliance of mortgage servicers, investors, and housing advocates was pushed by President Bush late last year as a private sector solution to the foreclosure crisis. A borrower would call the Hope Now hotline, and counselors would start the process of negotiating with lenders. But from the start, Hope Now was plagued by problems, with too few qualified counselors overwhelmed by too many callers. And lenders didn’t seem that interested in fully participating – they might agree to repayment plans that allowed borrowers to stretch out their debt a little longer, but they weren’t keen on reducing loan amounts.
Giving someone extra time to pay back a loan they can’t afford in the first place doesn’t do much except to push back the day they’ll be foreclosed on. That’s why Hope Now’s regular release of its numbers to prove its progress always has been misleading. The vast majority of the reported workouts are repayment plans, not true modifications. No one knows how well the workouts or the modifications have fared, and details never are released about the nature of the modifications reported. And in the meantime, foreclosures are soaring.
It gets worse. Just as Hope Now was releasing its latest statistics, the California Reinvestment Coalition announced that a survey of its 42 mortgage counseling agencies found that clients were more likely to end up in foreclosure than with a loan workout. The agencies also said that as a whole, the industry was unwilling to agree to loan modifications.
This is worth keeping in mind as debate continues over Congress’ mortgage rescue plan. Lenders certainly would have more incentive to refinance troubled loans under the plan, since the new mortgages would be backed by the government. But it’s all voluntary – lenders don’t have to participate. I wonder if anyone’s looking at Hope Now and wondering just how enthusiastic the mortgage industry will be this time around.
As nothing gets done, there’s just haggling over numbers, dubious claims of progress, and continuing fights in Congress. Here’s a look at what it’s like in the real world for borrowers in trouble, courtesy of The Record in Stockton, Calif.:
William McClamy, with a family of 10 that includes a grandchild, is in a world of hurt and frustration as he has wrestled futilely to get a home mortgage loan modified so he and his family can stay in their Tracy home.
He contacted the lender, Countrywide, when his adjustable-rate mortgage payment was about to jump $1,200 a month to $4,100 and was told the company couldn’t help, because he wasn’t behind on payments yet.
Seven months ago, he was in trouble and couldn’t make full payments and was passed from one Countrywide staffer to another to another. Still, nothing happened, he said. Countrywide didn’t respond to a request for comment.
“We’re in limbo,” he said. “We’re looking at foreclosure at any time now. They ignored us. They don’t care.”
6 Comments
Comment posted July 5, 2008 @ 8:00 pm
[Just as Hope Now was releasing its latest statistics, the California Reinvestment Coalition announced that a survey of its 42 mortgage counseling agencies found that clients were more likely to end up in foreclosure than with a loan workout.]
So, you mean the wonderful suggestions like, “Call your lender,” or “Contact HOPE NOW,” or “Locate a HUD-approved foreclosure counseling agency” is not good advice?
The lenders have done an awfully good job of controlling the discourse with regard to how to solve this foreclosure “crisis.”
With so many people are clamoring for government assistance/intervention, the worst may come to pass: they might actually get what they’re wishing for.
I would like one… JUST ONE example of a serious problem that our legislators have actually solved.
It certainly IS an uphill battle to get your lender’s cooperation and obtain a good workout plan, but this is not a lazy man’s (or woman’s) game. You have to be assertive, persistent, and you have to do more than just “call your lender.”
You actually have to do some homework. You have to take a sobering look at your REAL financial numbers, not just what you “think” they are. To really have staying power, you have to make some changes to make sure that you’ll avoid foreclosure and stay out of foreclosure.
But it CAN be done… despite the constant whining of the non-profits, and in spite of the odds SOMEONE is getting those modifications.
Comment posted July 5, 2008 @ 6:46 pm
Lenders for a period of time made getting a loan very flexible. They presented a number of ways to get the loans to the closing table, for one no doc loan. These types of loans got a lot of people in trouble as well as the almighty ARM that can get anyone to qualify with the teaser rate. The homeowners that knew they cold not afford the loan once the rate started to adjust but according to the loan officer you can just refinance when its time for the loan to adjust. The end of the story is that a lot of homeowners will lose their homes and not because of poor loan choices but also the economy that has eliminated jobs from the United States and taken to another country to. Just to let you know its not just the sub-prime mortgages in trouble but also the prime. There is no quick fix for this situation but we need to let it fix itself. To read more stories about homeowners in distress or even to help a homeowner go to askmeme.com and click on save my home expression.
Comment posted July 3, 2008 @ 1:23 pm
So we should just take back everyone’s debt and stop any and all foreclosures, remove all products from the market for those people who can’t qualify for the traditional loans without 20% down? Is that what you are promoting? Where is any sense of personal responsibility? Ed McMann, Jose Canseco .,..and countless other millionaires are going into foreclosure are you telling me we should give these people workouts too. What about the people who are simply walking away because now they owe more than its worth instead of hunkering down and waiting for when the market comes back – owe wait that’s lenders fault too because they sold homes in an inflated market – shame on them.
For some actually balanced stories running today check out these papers:
Los Angeles Times
San Francisco Chronicle
Sacramento Bee
use the search term mortgage.
Comment posted July 3, 2008 @ 8:23 am
So we should just take back everyone's debt and stop any and all foreclosures, remove all products from the market for those people who can't qualify for the traditional loans without 20% down? Is that what you are promoting? Where is any sense of personal responsibility? Ed McMann, Jose Canseco .,..and countless other millionaires are going into foreclosure are you telling me we should give these people workouts too. What about the people who are simply walking away because now they owe more than its worth instead of hunkering down and waiting for when the market comes back – owe wait that's lenders fault too because they sold homes in an inflated market – shame on them.
For some actually balanced stories running today check out these papers:
Los Angeles Times
San Francisco Chronicle
Sacramento Bee
use the search term mortgage.
Comment posted July 5, 2008 @ 1:46 pm
Lenders for a period of time made getting a loan very flexible. They presented a number of ways to get the loans to the closing table, for one no doc loan. These types of loans got a lot of people in trouble as well as the almighty ARM that can get anyone to qualify with the teaser rate. The homeowners that knew they cold not afford the loan once the rate started to adjust but according to the loan officer you can just refinance when its time for the loan to adjust. The end of the story is that a lot of homeowners will lose their homes and not because of poor loan choices but also the economy that has eliminated jobs from the United States and taken to another country to. Just to let you know its not just the sub-prime mortgages in trouble but also the prime. There is no quick fix for this situation but we need to let it fix itself. To read more stories about homeowners in distress or even to help a homeowner go to askmeme.com and click on save my home expression.
Comment posted July 5, 2008 @ 3:00 pm
[Just as Hope Now was releasing its latest statistics, the California Reinvestment Coalition announced that a survey of its 42 mortgage counseling agencies found that clients were more likely to end up in foreclosure than with a loan workout.]
So, you mean the wonderful suggestions like, “Call your lender,” or “Contact HOPE NOW,” or “Locate a HUD-approved foreclosure counseling agency” is not good advice?
The lenders have done an awfully good job of controlling the discourse with regard to how to solve this foreclosure “crisis.”
With so many people are clamoring for government assistance/intervention, the worst may come to pass: they might actually get what they're wishing for.
I would like one… JUST ONE example of a serious problem that our legislators have actually solved.
It certainly IS an uphill battle to get your lender's cooperation and obtain a good workout plan, but this is not a lazy man's (or woman's) game. You have to be assertive, persistent, and you have to do more than just “call your lender.”
You actually have to do some homework. You have to take a sobering look at your REAL financial numbers, not just what you “think” they are. To really have staying power, you have to make some changes to make sure that you'll avoid foreclosure and stay out of foreclosure.
But it CAN be done… despite the constant whining of the non-profits, and in spite of the odds SOMEONE is getting those modifications.
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