Why Loan Modifications Are Rare

I talked to a friend who wants to keep his house and he asked me for advice.  I told him that a previous client had gotten a loan modification at the final hour but that there were companies that could help him if he didn’t have the time. I have no idea how good they are or if they are legit though.  I checked in with him today and he said someone was assigned to his case but that they get 15,000 -20,000 requests a month for loan modifications. Wow. This isn’t even the biggest bank out there.

The Motley Fool posted an article about loan mofications. Of the eligible mortagages JPMorgan Chase (it should include WAMU) and GMAC only granted 20% of them a trial loan modification.  I don’t see in the article what the difference between a trial and real loan modification is.

• Citigroup 15%
• Wells Fargo 6%
• Band of America 4%

They list their theories why so few banks are modifying loans when the federal program pays them $4000 for every successfully modified mortgage.

• They lose money when the loan modification doesn’t go through.
• After 90 days most modified loan redefault. This just postpones foreclosure in a sliding market.
• They make fees on you being behind.

An issue not addressed is that on most loans the bank has no control.  They have sold the loans to investors which is part of the reason it touched the global economy.  They have to get permission from the investor to modify the loans.  I wrote about this many times but it bears repeating so people understand why this is as simple of a solution.

Last year one bank said it modify all of the loans it controlled.  It was only about 50,000 loans.  They sold many times more than that into the market.

Loan modifications happen but you need to be diligent with the bank. Call them as you can easily slip through the cracks.  Understand you have zero power with them to threats and harsh words will backfire.  Ask them when you should contact them. Some will appreciate it, some might not.

If it looks like you aren’t going to get the modification to go through, do a short sale.  It will save your credit from a foreclosure. You will have enough issues without tacking that on there as well.