Are Banks Better off Foreclosing Beaufort, SC Homes?
Remember this past summer, when loan modification statistics were starting to become revealed? The data was murky, at best, when it came to determining whether the government's Making Home Affordable efforts - part of the overall stimulus package - was helping distressed homeowners keep their homes.
There were early indications that banks were dragging their feet. Then the U.S. Treasury started to put pressure on the banks, who pledged to increase those in trial modifications from about 200,000 to 500,000 by Nov. 1.
Now that we're past that date, there's no hard-and-fast data yet that shows that goal has been met. What there HAS been is complaining that banks are still reluctant to help homeowners avoid foreclosure - even though the government has put in place incentives for them to do just that - and the suggestion that a staggering number of new foreclosures lies ahead.
It begs the question. "If banks are being given incentives to modify loans, why aren't they doing so?"
Well, a consumer advocacy group called the National Consumer Law Center says banks are financially better off foreclosing than modifying.
In a report titled "Why Servicers Foreclose, When They Should Modify, and Other Puzzles of Servicer Behavior," NCLC lawyer Diane Thompson concludes that banks would rather start the foreclosure process than work with a struggling homeowner.
"With home values plummeting and layoffs common, homeowners are crumbling under the weight of mortgages that were at best only marginally affordable when made," Thompson said in a press release. "One common sense solution to the foreclosure crisis is to modify the loan terms in more instances. Foreclosures are a costly ordeal for the homeowner, the lender, and the community. Yet they continue to outstrip loan modifications because servicers have no incentive to help borrowers stay in their homes."
According to the report:
Loan modifications inevitably cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penalty, but potential profit, if the home is foreclosed."
The report's blames the securitization of mortgage products for the lack of interest on the part of loan servicers to work out principal and interest reduction plans. The report concludes that paying investors holding mortgages that are modified is more expensive than going into foreclosure. The report makes several recommendations to change the existing modification issue:
The NCLC report outlines the following action steps:
•· Avoid irresponsible lending through regulation of loan origination
•· Mandate loan modifications before a foreclosure
•· Fund quality mediation programs
•· Provide for principal reductions on existing loans in the Administration's Home Affordable Modification Program (HAMP) and through bankruptcy reform
•· Increase automated and standardized loan modifications for borrowers in default and provide a safety net for borrowers for whom a standardized modification is not affordable or who later default, through no fault of their own, on a loan modification
•· Ease accounting rules for modifications to facilitate standardized review, encourage long-term modifications, and enhance servicer recovery of the expenses incurred in performing a modification
•· Require more transparency and uniformity in how servicers report loan modifications to investors
•· Limit fees charged borrowers in default to reasonable and necessary ones
You can access the full report at www.ConsumerLaw.org
Beaufort, SC Foreclosure Real Estate for Sale
David Thompson, Foreclosure Specialist and his REO Masters Team offers expertise in identifying, evaluating and assisting clients in purchasing and liquidating foreclosure and short sale properties in the Beaufort and Bluffton, SC area. (843) 812-5214