Pressure On Lenders to Modify Mortgages

Mortgage and Lending with CNN Mortgage

The pressure is on lenders to modify mortgages but lenders are not giving easy handouts. There are varying degrees of distressed borrowers. Modification only makes sense for a lender if the borrower cannot make payments without it, but will be able to keep up with a lower mortgage payment. 

While Washington policy makers are incentivizing lenders to perform mortgage modifications, not every homeowner will receive one. Lenders evaluate the long term potential of repayment on the new loan. Some homeowners will still fall behind on their payments even after receiving the temporary band aid because of income instability and may lose their homes one way or another. A modification that just delays the inevitable is more expensive for the lender.   Some homeowners who (may even currently be delinquent but) can catch up without a modification, have asset reserves, or could lower their lifestyle and sacrifice luxury items will find their lender is less than willing to modify the terms of their mortgage.   

In a blog written by David G. Kittle,  chairman of the Mortgage Bankers Association, "Everybody loses when a home goes to foreclosure. The homeowner loses a home. The bank loses a customer and a significant amount of money by having to take back the home and cover costs of resale, taxes and interest. The community as a whole loses."

We will keep an eye on Washington over the coming months to see how this all plays out.

Interest Rates for Monday, 7/28/2009

Mortgage prices are lower (interest rates rates slightly higher) this morning ahead of this week's large Treasury note auctions, which will take place over this week.

Conforming Conventional 30Yr Fixed  5.500%

Conforming Conventional 15Yr Fixed  4.875%

Conforming Conventional 5/1 IO ARM 4.500%

FHA 30Yr Fixed 5.500%

 * Above Conventional rate quotes are as of  7/28/09 on a Conventional $165,000 loan amount, primary residence at 80% loan to value, with a 720 FICO score.  APR includes $1,200 in lender fees and 980 in title charges (title charges may vary).  FHA Quote assumes a $125,000 loan amount and a 680 FICO score, and a 96.5% LTV. Documentation of income and assets required.  No origination or discount points.



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Dave Wierzbicki
RE/Act Real Estate Coaching System - Reading, PA
RE/Act Real Estate Coaching System

I still think there are scores of investment properties out there that loan mods won't work for or cannot be done and those properties could really cost everyone

Jul 28, 2009 06:25 AM #1
Bill Risser
Fidelity National Title - Saint Petersburg, FL
Fidelity National Title - Tampa District

Nice sysnopsis of the motivation for lenders.  Too many bring the dreaded "sense of entitlement" to the table when seeking help.

Aug 02, 2009 11:59 AM #2
Craig Chapman
Call Realty / Access Appraisals - Mesa, AZ
The Value Guy

Good points on loan modifications.  Hardship is a big issue.  Owners who want a loan modification will have to show they cannot keep paying the current payments, but have the real ability to pay the new lower payment.  Not everyone is going to get the loan balance reduced to current market value, which is what most really want.  It seems like many are getting the interest rate lowered or perhaps getting the amoritization schedule changed from 30 yrs to 40yrs to get the payment reduced.  The thing is with these fixes, they only work as long as the people don't need to move, because they are still upside down.  And we know if the owner is still upside down, they can be a prisoner in their home.  If they later need to relocate, they are still faced with a possible short sale or foreclosure. 

It does seem to me that the lenders shouldn't need to much pressure to figure out that in many cases, they are way ahead to do a loan mod than to eat a short sale or foreclosure.  The cost of adequate staffing, training, & policy to cut losses would seem to pay for itself in the long run. 

Best of luck to everyone, I read that we still have about 2 more years of foreclosures to go, hopefully in a little less volume than we have seen in the last year or so.  

Craig Chapman - the value guy


Aug 03, 2009 03:48 PM #3
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