Everything in real estate seems to be cyclical. Housing markets go up and down; interest rates go up and down and so on. The real challenge is knowing when a market will change. Loan modifications all but disappeared in the Summer of 2010 because servicers were not processing and owners of notes were not modifying them.
In February of 2012, the well-publicized “Attorney General” lawsuit against major lenders and servicers was settled. The settlement took full effect in July of 2012 and as a result, loan modifications are back.
For one thing, you no longer have to be behind on your obligation. Owners who are current and who otherwise qualify for modification can receive relief. Another positive aspect of this wave of modification is that banks are required to modify the principle balance down to a point of neutral equity (reduce the principle balance down to the market value).
The banks DO receive financial incentive to do this. They are doing this to receive money from the government and to satisfy charges of fraud and abuse. The banks will behave as long as the attorney generals of 49 states are watching them and so long as the pool of funds is available for them.
Last week, there was another settlement of additional charges brought by the government against the same lenders and servicers. This placed another $10 billion at the disposal of the lenders and servicers if they modify loans.
There has been no better time to modify loans. The guidelines to receive modification have not changed much but the motivation of the lenders has never been higher. However, this wave of modification will not last forever. It has been very cyclical and it is likely that another period of modification resistance will return. It makes sense to seek modification NOW and not to wait. If you or your clients have mentioned a modification, it makes sense to get started now as the process does take time (I typically quote 4-8 months).
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