Orlando Real Estate

Loan Modifications Not Working

June 22nd, 2010 9:45 AM by David W. Welch

I am the Real Estate Optimist, so let me start by saying the market will correct itself. Personally, I believe it would correct itself a lot faster if there was not quite so much intervention. From what I have seen, when there is a government program, there is a way to "game the system." It is much harder to play games with the market, because the market adapts. Government programs tend to be large static objects that do not adapt to the latest changes. Just read this article I saw on Yahoo this morning. http://finance.yahoo.com/news/Borrowers-exit-troubled-Obama-apf-887634101.html?x=0

From my own personal observations, I have seen people that should be ideal candidates for loan modifications denied. Unfortunately, I have to agree with Sumani Lanka, the attorney in the article, who finds that there is a lot of apparent incompetence. I am not sure if it is incompetence as much as a lack of procedure. There is a perception on my end of things that the banks have no actual procedures in place to deal with loan modifications or short sales. A process is quite simply a series of steps you must go through to achieve an outcome, yet most of the banks I have dealt with cannot tell me what steps have been completed or where they are in the process.

They simply seem to have a phase where they create a file, which is probably the most frustrating. This is the phase where they deny receiving information that is resubmitted repeatedly until they acknowledge receipt. Then it seems to float around in their black box for an undetermined amount of time - "in processing." The next phase is where they actually seem to assess the potential for the loan modification or short sale value. The conclusions they reach during this phase can also be quite frustrating, because they frequently make no business sense.

I know of one person, who was out of work for some time and unable to make their payments. Now he has a new job and is able to make his payments again, but the bank is pursuing a foreclosure. He is just asking them to restructure his loan so the amount that he is behind is put on the end of the loan so to speak. He wants to make his payments and stay in the home. This is the type of situation they should be working with. If they foreclose, they will likely loose at least $60,000. If they will work with the owner, all they lose is the time value of the payments he is asking to be pushed out. They can get paid everything a little late, or lose $60,000 now. They are telling him they would rather lose $60,000 now. You just cannot regulate dumb.

David Welch Real Estate Optimist, Orlando Real Estate

Posted in:General
Posted by David W. Welch on June 22nd, 2010 9:45 AM

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