According to the latest report by the Dept of Treasury, loan modifications are failing at an alarming rate. Consider: of the 728,000+ attempted loan modifications done so far through the government’s HAMP program, only slightly over 31,000 have been successful. Stated differently, if you attempt a loan modification, you have a 23% chance of success. Why can’t people get loan modifications completed? Let’s take a look.
According to reports from banks, homeowners are to blame because they don’t turn in the paperwork required, nor do they make trial payments. Homeowners, on the other hand, say mods are failing because lenders are losing paperwork, foreclosing on “accident,” changing terms mid-stream, simply ignoring them, or denying them loan mods based on some mysterious formula.
There are in fact many homeowners who can qualify for a modification who have decided they don’t want one. These people who “failed to complete the process,” probably came to the conclusion (after months of emotional hell) that it’s best to ditch the home and start over. Once these families have been through 6 months of fighting with their lenders about a modification, they start to realize a few things:
a.) their credit is already ruined
b.) the “fix” is somewhat iffy, and temporary
c.) there is a real chance they’ll be going through this again in 5 years
These facts add up fast, and signing on the dotted line to temporarily modify an already shaky loan is the last thing these people want.
Homeowner accusations of lost paperwork, accidental foreclosures, and unfair dealing are all absolutely true, when viewed in a certain light. The reasons that banks appear to be unfair in their dealings is probably for a different reason than many think, though. What many fail to realize is that getting three huge bureaucracies to agree, in writing, to give away free money, and coordinate this free money give away on a specified date is no small feat. It can actually feel a lot like trying to trick a gang of bullies into poking each other in the eye while you make a quiet escape. That’s not to say it can’t be done, just that it’s . . . tricky. It really helps to understand the bureaucracy part of the equation to understand why you can’t get help from your bank.
The servicing lender you send your bill to every month? They don’t actually own the mortgage to your house. They’re just “servicing” that mortgage for an investor. So already, you’ve got one road-block. Your servicer can’t actually make a decision regarding modifying or short selling your loan. Oh, and that lovely and gracious representative on the other end of the line you call for help? She’s about 20 people down the chain of command in this organization that can’t make a decision anyway. Not only that, she’s likely a low paid “temp” with little incentive to be helpful or friendly. And to make matters worse, she knows absolutely nothing about the process, your file, your problem, or the bank she works for! She’s just reading from a screen that contains very little information. She couldn’t help you even if she did have the best customer service skills in the world. I could actually write an entire book on the process, and the steps that have to be followed, and the executives who need to sign off, and this book would leave a lot of questions unanswered. Imagine, if you will, that you would like the federal government to send you a detailed report of every dollar you’ve paid them in taxes and what they spent it on. Yeah. It’s kind of like that.
The housing crisis is an absolute mess. The processes in place for helping troubled homeowners are very confusing, very time intensive, and anything but guaranteed. Lenders will continue to blame homeowners, and homeowners will blame lenders for lack of progress on the issue. There is one certain fact that everyone knows, but we’re hiding from and delaying at all costs: there will be millions of families moving out of their homes and renting in the coming years. The millions of the homes sold between 2000 and 2008 are the crumbling, decaying, “foundation” of all of our household wealth. It is and has been crumbling. Those who abandon ship now will suffer for a time, then thrive and grow again. Those who continue to “re-arrange the deck chairs” on this sinking ship will be floating on a life-raft for quite some time.
Next time, I’ll detail for you the governments new program to “streamline” this process. . .
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*Disclaimer: We DO provide loan counseling services to our clients, but we NEVER charge the homeowner money. Please also remember: I am NOT an attorney, and neither do I play one on TV or the Internet. None of these pontifications should be construed as specific legal advice. If you need specific legal advice regarding your personal situation, give us a call. We can help you ourselves, or provide a list of housing counselors that are free!