Loan Modification Practices Increase Foreclosure Risk

More and more it becomes obvious that the lenders are playing 'Panic Football'. They have no strategy in place to cope with this crisis and certainly don't have the team, let go the coach to handle the actual crisis.

If you have ever worked in a corporate environment and have some common sense left, then you certainly learn to appreciate the 'Dilbert' comics. Because it is sad but true, corporations are all about politics, laziness and ego.
Nobody cares, it's everyone for him- or herself everyone is good at 'shuffling paper around' and most of them don't have a clue what they are doing.

Take the new approach to loan modifications as an example. Certainly some bright Harvard boy has been named Head of the Loan Modification Department, with the mission to save as much "Loans" from foreclosure as possible. Note the emphasis on "Loans" not "Homeowners".

So what does this bright manager do? Where is his department going to find people to offer Loan Modifications? Or how can they get into the picture of upper management showing statistical improvement?
Well, someone just got a bright idea! This smart executive instructed his team to call all short sale files and offer a loan modification to these distressed homeowners.

Great Idea isn't it?

The answer is: NO

Think about it. These people, who are going for a short sale solution, have already months of outstanding payments. They have a genuine hardship, they either lost their job, have medical issues, are in divorce or in the military and most of all they are desperate. They don't have the income anymore. They have exhausted their savings. All because they did what the Lender's collections department told them to do: The lender suggested to these poor people to tap into monies from friends, family, 401K and pension fund in order to get paid for these silly mortgages.

So now, that these homeowners finally have come to the conclusion, that the only decent thing for them to do is to try and get their home sold in a short sale, to negotiate debt forgiveness and to walk away with no deficiency judgment. Now the Lender offers the homeowner a loan modification. Imagine getting a call from your lender, after being 6 months late in payments and uncertainty, offering you a loan modification. Would you be happy? I bet you would. So, what does the homeowner do? He jumps on it!

The Almighty Lender has now given Hope, and the homeowner thinks that all will be fine from now on.

Well it won't!

In reality the lender is now going to take 2 months or more to find out that the homeowner does not qualify. Why does he not qualify? Because he does not make enough money and has too much debt... Dummy. As a result of 2 months waste of time and energy, both at the lender and the homeowners side, a nice letter is send to the homeowner telling him that he cannot get a loan modification and that's the end of it.

Meanwhile, during this loan modification process, the house has been taken off the market for two months and precious marketing time has been lost and foreclosure is inevitable.

Very few homeowners qualify for a loan modification, but most of them qualify for a Short Sale.

So I suggest that the lenders offer loan modifications to the people who ask for them, namely the homeowners who are still current but recognize upcoming financial hardship and leave alone those people that are trying to save what they can. Namely, their good name and credit, by avoiding deficiency judgment as a result of a foreclosure.

By Christian Bohyn, MonkeySold