Loan Modification Works Better If Payment Lower
By Kent Anderson, Oregon Bankruptcy Attorney on Oct 2, 2009 in Featured, Mortgage Modification, Uncategorized
Will wonders never cease? The Comptroller of the Currency and the Office of Thrift Supervision issued a joint report on home loan modification recently for Second Quarter 2009. What a surprise to find that many modified home loans went into default when the payment wasn’t lowered or when it was actually increased.
More than half of the loan modifications in the first quarter did not lower the monthly payment amount. At this point, taking into consideration all prior loan modifications still in effect, only 10% of the modifications actually lowered the borrowers monthly payment obligation. According to the study, 78% of the loan modifications in the second quarter lowered the required payment. I guess that means that 22% of the loan modifications provided no payment help and just dealt with missed payments or actually increased the payment for the borrower.
When the banks claim that loan modification doesn’t work and that re-default is common, I guess we now have data to show us why the second default occurs. If a borrower is having difficulty making monthly payments, increasing the payment amount is not likely to help prevent a repeated default.
This is the case with many of my clients. Yes, they have been offered loan modification. Several of them have had their loans “modified” more than once. However, the missed payments were added to the principle and the loan was re-amortized over the remaining term. This requires an increase in payment.
In some cases, when a loan loss remediation was done, the loans were not actually re-amortized, the missed payments were added to the normal payment and the borrower was required to bring the loan current over a rather short period of 6 or 12 months.
In these days of reduced economic activity, layoffs, plant closings and other threats to regular income for consumers, it only makes sense to help the consumer by reducing the demand on their limited income.
When the banks tighten the screws, some people revolt. Maybe this time our congressional representatives will begin to listen to the people and pass a bill that allows judicial modification of home loans. A failure to do so may result in changes in congress. Listen up Credit Unions and Banks.
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