Posted by 101livescan on 1/20/09 8:34am
Msg #275119
Modifications Sometimes Not Possible at All
Mortgage Modification Madness
Source of Title Blog
In this environment, mortgage modification seem to make perfect sense. We have tens of thousands (maybe hundreds of thousands) of borrowers who were able to make their payments before their interest rates adjusted upward. The most simple solution to avoiding foreclosure would seem to be modifying the mortgages and lowering the interest rates back down to a level the borrowers can afford. When banks take a loss of about 40% on ever home they foreclose on, why would they balk at lowering the interest rate a couple of points and merely lose a little interest, rather than 40% of the principal?
The answer lies in the complicated securitization process that quite arguably got us all in this mess to begin with. The banks have sold most of these loans to investors who aren't willing to budge. They bought the "investments" with a certain promised return and they aren't willing to give that up. In short, the banks' hands are tied.
So the beat goes on...borrowers continue to get the royal screw by signing up with modification companies who make wild impossible claims about "saving their home" when in reality mostly it is impossible to help people with some of these loan products. An associate of mine who works for a state agency here in Santa Barbara county tells me that only about 30% of borrowers can be helped. The others have these loans that cannot be modified and that is why foreclosures continue to mount.
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