There’s a couple of interesting and yet disturbing points to this report from CNBC:
- over 2/3rds of the people who are currently in the trial period of loan modifications are not going to qualify for the permanent modifications. Why? A couple of likely possibilities: 1) They are too far upside down and are looking at it and saying, “I’m out of here.” 2) They aren’t willing to provide documentation of what their financial position is because it would make it evident that they had lied on their loan application and that’s a federal offense last time I checked.
- I had a past customer call me on Friday and said that he was never told that his short sale paperwork had an expiration date (which has now past). He said it took too much work and he’s not going to do the paperwork again. I didn’t ask him what his plan is from here, but I think it illustrates the pain and frustration that so many people are feeling in the process. They just throw their hands up in the air and say, “I give up.”
- If 2/3rds of the loan mods don’t go to permanent status, what do you think that’s going to do to the number of foreclosures? Yeah, that’s right, it’s going to increase them.
The entire way that the banking industry is handling foreclosures, short sales and loan modifications isn’t designed to encourage participation (or perhaps mandate participation?) Until we get an organized and systematic way to deal with the facts that:
- We have many people who took out loans that they never had a chance of paying on time.
- We have many people who took out loans that are worth way more than their houses are.
- We have many people who took out responsible loans and have had bad things happen to them and now aren’t able to make their payments.
All three of these require different responses and a different way to effectively resolve the challenges that we’re facing.
If you ask me, the government and the banking industry haven’t figured out the way to deal with them that really works yet.
Tom Vanderwell
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