For a long time many homeowners who are distressed have been trying unsuccessfully
to get their banks to allow them to modify their loans. Why are most of their attempts
unsuccessful? Below are some of the reasons:
- These are non-performing loans that the banks would rather not have on their books.
(yes, they have been holding onto many properties, and not even placing notice of defaults,
but that will be changing).
- Approximately 2/3 of homeowners who are granted a loan modification wind up
defaulting during or immediately after the 3 month trial period.
- Homes are not appraising for market value, so the homeowner's loan is usually for
- If the bank thinks they will make more money by selling the home now, a loan mod
is not feasible to them.
- The banks loss will be 40% on REOs, vs. 20% on short sales. If the bank grants the
homeowner a loan mod and they default on it, the homeowner will no longer fall into
the debt forgiveness category as the loan is now a recourse loan.
There are other reasons why the banks are not granting loan mods, but these are some