The Statistics are in…Your Lender Loves You….Or maybe You are Just a Sucker?!
It is now headline news that 56% of past Loan Modifications are in “re-default”. I am not even sure that is a proper word. Can you imagine more than half of all Loan Modifications are going into default again and the homeowner is once again facing affordability issues and foreclosure? Now, lets all be honest. If this was sixth grade and the lenders were to get a report card for achievement they would all be getting an “F” for complete failure. Of course, I am sure in a perfect world the lenders would be asking to be graded on a curve against other lenders so they don’t appear to be a bunch of complete losers. The lenders have failed miserably. Should we call Congress for another bill or should we seek a free market solution?
The fact of the matter is that Loan Modifications and general workouts are by design established to keep homeowners in their homes so the lender can then avoid the costly burden of a foreclosure. Foreclosures cost lender lots of money. The lenders have not felt enough pain if they are not willing to modify eligible loans to a point of affordability that will provide the homeowner a long term solution. Why tell someone you are going to reduce their payment $300 per month after the arm loan just took it up $1200 per month? This makes absolutely no sense.
Loan Modifications are simple and could be rationed out in scale if the lenders would determine who is categorically eligible and establish the new payments based on a pre-determined level of gross income. As an example, your new PITI payment for you house is now reset to 35% of your gross income for the next three years and it will adjust 8.0% per year for two consecutive years after that. You can make this stuff up. Just make it possible for the person that owes 100-300K+ more on their home, and wants to stay, to actually stay. The alternative is a Short Sale or Foreclosure or more lies and sleepless nights begging your lender for help. I don’t like the word beggar because it sound so helpless. I prefer the word “taker”.
As a ‘taker”, I am an advocate of the free market solution with a Short Sale. We will charge you much more money if you force us to help you with a Loan Modification. The Short Sale exposes the incentives for your lender to cooperation and the disincentives if they don’t. It effectively levels the playing field so both parties can win. The problem with a Short Sale is you! You are the whole problem. You got yourself into a bad situation or a bad decision and you have to continue making payments you clearly cannot afford and your ego is on the line. Every single day of the week I hear the nonsense over why my lender just won’t forgive 200-300K and let me stay in the home. It doesn’t work that way dummy! Most of you have great jobs and made stupid decisions. Without the free market solution you are stuck. If you want to be a sucker then go to sleep thinking your lender has your best interest at heart. I am sure they will modify your loan so you are happy.
The statistics don’t lie. 56% are in “re-default” and guess what…90% of Loan Modifications don’t provide affordable loan term solutions for homeowners. Do you still want a Loan Modification? Call up Sheila Blair, Head of the FDIC. Ask her what she thinks of modifications and how conscientious the lenders have been to the people. If anyone knows it is certainly the Head of the FDIC. Also ask her how many calls she is getting on behalf of “The Negotiated Solution” complaining about homeowners unhappy with the free market solution. That phone has been the quiet one.
The sooner you wake up and realize you have to find a fair way to negotiate with your lender, and that you owe all the money, the sooner you will find your way to the Short Sale. You can get out of the bad situation, get the debt forgiven, and move to the house across the street for half the money in the majority of scenarios. Now that is what I can a Modification. You have to have a plan to succeed. Capitalism does not reward failure. Why are you allowing your lender to hold all the cards as miserably as they have performed? Just a thought.
In my opinion, the best Short Sale clients are those that have already been beaten by there lenders. These people are frankly indifferent. They know the cunning niceties from the collection department were just part of the game. You lender does love you and they will take every nickel from you as long as you let them. Once you catch on, well…, then you will have to deal with your lender’s B team and they are not so nice. The answer is the free market solution of a Short Sale to Stop Foreclosure, Avoid it altogether and to address significant affordability issues.
GHunter
December 9th, 2008 at 11:07 pm
What you are saying sounds great to the uninformed, but the reality is lenders will put that nasty “Settled For Less” on you credit in a short sale (which is nearly as bad as a foreclosure). Furthermore, lenders rarely move quickly enough to complete a short sale, as they are loath to accept how low the real market value is. The result is that you waste time and money trying to do a short sale and end up with a foreclosure anyway…..
December 12th, 2008 at 9:23 am
This is only partly true, and actually as uniformed as the author portends you are being. A “Settled For Less” or “Settled Debt” is no where near as bad as a foreclosure; in fact, we have many clients who have been in a new property within eighteen months. Moreover, the Negotiated Solution has over a 90% success rate in getting the bank to close a short sale. The TARP is not paying for foreclosed properties, banks are eager to do short sales and their own BPOs set an acceptable price. A short sale is a positive solution for lenders and sellers, and with the correct negotiator the Seller has a real chance of getting this done. Additionally, since, in most instances, the settled debt is not even taxed (under new changes to the tax code) for primary residences this is even a better reason for Sellers to try this method. A foreclosure will kill your credit for seven years, this is not a risk worth taking.
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