Why Loan Modifications Are Not A Financially Sound Solution

By
Real Estate Broker/Owner with Nashville Short Sale Specialist - Jim McCormack - Edge Advantage Realty, LLC - 615-784-EDGE (3343) TN RE License# 320030

Why Loan Modifications Are Not A Financially Sound Solution
Why Applying For A Loan Modification Is Not Worth The Effort and Cost In Time And Money

Many financially distressed homeowners and investment property owners who are facing foreclosure put all their hope in getting a loan modification from their bank or mortgage company. Unfortunately, as this McSweeney's article - Could It Be That the Best Chance to Save a Young Family From Foreclosure is a 28-Year-Old Pakistani American Playright-slash-Attorney who Learned Bankruptcy Law on the Internet? depicts, the loan modification application process can be exhausting, time consuming, frustrating and expensive.

In this article the financially distressed borrowers had to wait over 14 months and spend thousands of dollars in attorney fees just to get their loan modification which which was a re-write of their mortgage loan to 40 years at a lower than current market interest rate for the next 5 years or so with an adjustable rate that is capped after that. While this helps the borrowers in the short term, it will hurt them badly in the long term. For starters, the borrowers are still heavily underwater (i.e. upside down) on their house and will likely remain so for over 10 years. In addition to that, the modified payments are not usually reported as normal payments on a credit report. Therefore, the borrowers will likely have their credit damaged slightly each and every month due to the reduced payment. In 10 years these borrowers will find themselves still unable to sell and due to the damaged credit probably unable to buy. If they had just accepted the reality that they cannot afford the house they could have sold their house via a short sale without paying a bunch of attorney fees and much faster than 14+ months. The end result would be that in 3-4 years their credit would be almost fully restored and they would be able to qualify for a new mortgage and buy another house at a much lower price. This is the much more financially sound strategy. While I fully understand that home ownership has it advantages and comes with strong emotions, I highly recommend that if you are facing default or a mortgage foreclosure that you put away your emotional thinking cap and put on your logical thinking cap since that is the one that will help you solve your housing and mortgage problems with a short sale rather than just push it into the future with a loan modification.

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Jim McCormack is a Nashville Real Estate Broker who provides Expert Real Estate Solutions for for Nashville, Brentwood, Franklin, Nolensville, Spring Hill, Thompson’s Station, Murfreesboro, Smyrna, LaVergne (La Vergne), Antioch, Columbia, Mt. Juliet (Mount Juliet), Springfield, Gallatin, Hermitage, Hendersonville, Clarksville and Middle Tennessee (Davidson, Maury, Montgomery, Robertson, Rutherford, Sumner, Williamson and Wilson Counties) Homeowners and Real Estate Investors Facing Foreclosure and Needing to Short Sell Their Homes and/or Investment Properties. Jim Specializes in Short Sales and Foreclosures and Providing Sellers Short Sale Help and Foreclosure Help. Jim's Help is Free to Nashville TN Short Sale Sellers. Jim Helps Sellers Stop Bank and Mortgage Foreclosure with a Short Sale, or a Fast Cash Offer. Avoid Foreclosure by Working Directly with a Nashville Tennessee Real Estate Expert and Investor who is Uniquely Skilled, Honest, Compassionate, Caring and Exceptionally responsive to the needs of his clients. Jim Encourages You to See What His Clients Say About Him. For Buyers, Jim understands the Various Nashville Tennessee Housing and Investment Real Estate Markets Extremely Well and is Particularly Skilled at Assisting Buyers with Determining the Market Values of Homes and Investment Properties. Due to that Real Estate Valuation Expertise, Jim can Help Nashville Home and Investment Property Buyers Get Fantastic Deals on Their Nashville Area Real Estate Purchases.

Posted by

Jim McCormack
Broker, REALTOR, e-PRO
Short Sale Specialist

Accelerate Realty Group, LLC
725 Cool Springs Blvd
Ste 600
Franklin, TN 37067

TN Real Estate Broker
License# 320030


Direct (615) 796-6898 - PREFERRED
Office (615) 567-5212

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Jim McCormack is a Nashville Real Estate Broker who Stops Foreclosure and Saves Homeowners' Credit via Short Sales in Nashville, Brentwood, Franklin, Nolensville, Spring Hill, Murfreesboro, Smyrna, LaVergne (La Vergne), Antioch, Mt. Juliet (Mount Juliet), Gallatin, Hermitage, Hendersonville and Middle Tennessee (Davidson, Maury, Rutherford, Sumner, Williamson and Wilson Counties). Jim Specializes in Short Sales and Foreclosures and Providing Sellers Short Sale Help and Foreclosure Help. Jim's Help is Free to Nashville TN Short Sale Sellers. Jim Helps Sellers Stop Bank and Mortgage Foreclosure with a Short Sale, or a Fast Cash Offer. Avoid Foreclosure by Working Directly with a Nashville Tennessee Real Estate Specialist and Investor who is Uniquely Skilled, Honest, Compassionate, Caring and Exceptionally responsive to the needs of his clients. Jim Encourages You to See What His Clients Say About Him. Jim is also a Murfreesboro and Nashville Cash House Buyer who solves real estate problems by buying houses, townhouses, townhomes, condos and multifamily properties AS IS for cash and closing quickly.

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Rainmaker
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Robert Smith
Preview Properties, PC - http://www.RealEstateMich.com - Brighton, MI
SRES, Search for Homes Brighton-Howell-SE Michigan

Jim, I have heard horror stories about loan mods firsthand from consumers.  The old '6 month trial' that doesn't get approved resulting in a huge bill for past interest and principal forcing many INTO foreclosure seems to be the most common repeat story I hear.   Some of those folks would have been foreclosed upon anyway, but making things worse for them financially is not good.  Giving them unwarranted hope is even worse.  Thanks for writing about this.

Jul 23, 2013 08:59 PM #1
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

I disagree.

For every loan modification that is not approved, there is a short sale that never closed. 

The one undeliable fact is that, with a short sale, the owner loses their home.

Jul 23, 2013 09:41 PM #2
Rainmaker
271,456
Jim McCormack
Nashville Short Sale Specialist - Jim McCormack - Edge Advantage Realty, LLC - 615-784-EDGE (3343) - Murfreesboro, TN
Nashville Short Sale REALTOR - Stop Foreclosure
Hi Lenn. If you read this story you will see that the Borrowers should lose their home. The wife's comments irritate me. She basically wants to remain in a house that was worth over $500K even though her husband brings home an annual net salary of $26K. She needs to face the reality that they cannot afford the house and never could. You are not supposed to be able to buy and keep things you can't afford. I don't buy their "everyone was doing it" excuse. He signed a paper saying his income was almost 12 times higher by stating he earned $25K per month instead of $26K per year. You don't need a math PhD to know you can't afford that payment. Honestly, unless the wife makes good money they can't even afford the $2K reduced monthly payment. Yet, this is what the politicians will claim is "fixing" the housing market. However, it is nothing more than postponing the inevitable foreclosure at taxpayer expense. A short sale would have been better for all if the Borrowers would accept reality. At the end of the day if you cannot afford the house you need to let it go. The false prophet of loan modifications are nothing more than a way for the banks to push a ton of would be distressed housing inventory into the future by "helping" financially struggling homeowners and borrowers to delude themselves into thinking that they can keep the house. The banks will end up taking huge percentages of these houses anyway with the result that the financial damage to these homeowners will continue for many more years than it would otherwise have to. Meanwhile, the housing market will continue to be manipulated by this activity and the market propping by the government with the result that the next generation of homebuyers will be forced to overpay for a house due to the artificially created scarcity created by these types of foolish policies. All of this nonsense is going to end badly. I would like a house on the beach in the Carribbean, but I can't afford it. Should I get to have it at taxpayer expense anyway? That is what these people are doing by getting to keep the homes they cannot afford. We are all paying for it now and in the future via taxes, government debt and a continued manipulated housing market. Talk about unfairness!
Jul 24, 2013 02:27 AM #3
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Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

I was going to respond to this blog, but I'm frankly a little taken aback by the judgment. I think I'll move along. 

Jul 24, 2013 07:20 AM #4
Rainmaker
846,120
Marco Giancola
Beachfront Realty - Miami Beach, FL
Realtor (305)608-1922, Miami Beach Florida

Hey Jim-I tend to be on the side of "reality check". Postponing the inevitable is just what it is.

Aug 08, 2013 12:42 AM #5
Rainmaker
271,456
Jim McCormack
Nashville Short Sale Specialist - Jim McCormack - Edge Advantage Realty, LLC - 615-784-EDGE (3343) - Murfreesboro, TN
Nashville Short Sale REALTOR - Stop Foreclosure

Hi Marco.  You definitely got right to the point of this post.  It is indeed a reality check.  Most loan mods will go bad and are nothing more than the bank playing on people's emotions in a difficult time.  This results in irrational decisions that are based in the emotion of the "home", not in financial reality.  It is our job as real estate professionals to help the stressed homeowner see their financial landscape as it actually is, not to help fill them with the false hope of keeping their home.

Aug 08, 2013 03:05 AM #6
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Connie Harvey
Pilkerton Realtors - Brentwood, TN
Realtor - Nashville TN Real Estate

Jim, we've missed you here in the Rain! I just stopped by to wish you a Merry Christmas!

Dec 21, 2013 05:25 AM #7
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Jim McCormack

Nashville Short Sale REALTOR - Stop Foreclosure
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