Real Estate Market Forecast

To Modify or Not To Modify

That is the question.  Depending on whom you ask, you may get an amusing variety of answers.  In theory, loan modification should be an equitable arrangement in which the bank avoids taking back a property from a family that is in hardship.  The family, in turn, would likely avoid losing their home and taking a broadside hit to their credit rating.

That was the hope of the U.S. government when they decided to “bailout” the banks.  Some of the money that went to these troubled banks was allocated for helping approximately 750,000 troubled families to save the family home.   The idea was to reduce the monthly payment to an acceptable level….maybe even some of the principle.  All would work well if everyone cooperated and tried to do the right thing.

Well, guess what?  Out of that huge number only 7,000 got modifications to their mortgages.  What happened to the rest of these unfortunate homeowners.  They ended up getting the “short end of the stick.”  Even now, it takes 4 months just for an applicant to get a reply.

As a result, attorneys are working to protect families across the country from the predatory practices of many banks.  Now banks, attorneys and others cannot accept money from homeowners seeking a loan modification until one has been successfully obtained.  But what about the many who have helplessly been relying on their lender for some relief?

One terribly wrong practice that has become commonplace is for a bank officer to suggest that the homeowner must go into default if they want the bank to “buy” their hardship story.  Imagine if you had stopped making your payments, received a N.O.D. (Notice of Default) and 4 months later get notified that you’ve been turned down for your loan modification?  In some cases, families have even gotten their notice of foreclosure auction while patiently awaiting a reply from the mighty bank.  Now their credit is shot, they will have to move and they are further away from a resolution than before applying.

Suppose, though, that a family took the short sale route.  They call a qualified short sale consultant and chose to stop making their payments, all the while saving every dollar for later.  Yes.  They will have to move…..eventually.  But in 24 months their credit can be repaired.  In addition, they will have gotten out from under the burden of debt that loomed over them relentlessly.  Honestly, we have to acknowledge that the banks have brought this on themselves by their greed and insensitivity.

Of course, each case is different and each family must decide for themselves which direction to go.  Nonetheless, the notion that the banks will be true to their fiduciary responsibility to the consumer has been dispelled.  Protect yourself!

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