We had an update last week on the success (failure) of the Obama administration attempts to prevent foreclosure via loan modifications. No surprise. They are failing miserably, principally because these were bad loans made to unqualified buyers who do not pass the test for modified loans because they don't have any proof of income, just like they didn't have any proof of income for the original mortgage.
Chase disclosed in November that:
- nearly a quarter of trial modifications had failed because the borrower did not make even a single payment
- nearly half had failed to make all three payments required before the modification could become permanent.
- Of those who had made all three payments, only about a quarter had submitted all the required documents.
Add all that up and approximately 25% 12.5% of applicants are making it through the loan-mod trial period.
So what's the real reason the mods aren't working? Because the loans never should have been made in the first place.
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From the NY Times
Why are so few temporary mortgage modifications turning permanent?
One reason may be the same one that a lot of bad loans were made in the first place. Borrowers can declare their income, and the banks are willing to grant temporary modifications based on those figures, without any evidence to confirm them.
But to make a modification permanent, the banks have to see proof of income, and the borrower has to make three monthly payments of the new lower amount. In most cases, those requirements are not being met.
The banks, and the government, are soon going to have to decide what to do about borrowers who are making the modified payments but have not provided the documents after repeated efforts to obtain them. Should the banks just take the money and let the preliminary modification turn permanent? Or should they foreclose?
Nearly two months ago, I spent a day at a JPMorgan Chase call center in Jacksonville, Fla., where employees had once worked the phones trying to persuade people to take out mortgages. Now the hundreds of desks were filled by people trying to arrange modifications of loans made by Chase or Washington Mutual, whose assets JPMorgan Chase acquired after that bank was closed by the government.
One of the most frustrated Chase employees I met was Domonique Perez, whose job was to round up the documents from borrowers who had been granted temporary modifications.
It was, she said, not going well.
She told of one man who had filed almost all the necessary documents — the permission slip for Chase to look at old tax returns, the pay stubs for current income — but not the affidavit of financial hardship. She had called and called, she said, and sent letters by regular mail and by FedEx, but the man was not getting back to her.
I listened to one call from a woman who sounded as if her world were collapsing. She and her husband operated a business, which seemed to be teetering near collapse, and its finances were intertwined with theirs. They were behind in payments on their mortgage.
Under the administration’s mortgage modification program, the new payment, including escrow payments for taxes and insurance, is to be 31 percent of the borrower’s gross monthly income. The woman first said their income was $6,000 a month, the amount they had taken out of the business when times were good.
Keep reading (there's much more to the story) at the NYT >>