Sunday, December 28, 2008

Here is one way NOT to go about getting a loan modification.

The San Francisco Chronicle had an article about a group of San Fernando Valley churchgoers who are banding together in an attempt to get their loans modified en masse because they feel like their is strength in numbers. From the article:

The startling request was Lasseigne's introduction to the epidemic of foreclosures afflicting his flock in the northeast San Fernando Valley, a working-class, heavily immigrant area where more than 8,000 homes are either in default or have been foreclosed.
In the past three months, Lasseigne and other community leaders have come up with an unusual response: They have organized more than 500 Hispanic immigrant families that are behind on their payments into teams that will seek to negotiate with banks as a group, rather than individually.
They also intend to compile detailed records of how and whether lending institutions agree to modify loans - information they say could be given to government officials in an attempt to give distressed homeowners more favorable terms.

Getting a group together for political pressure isn't the bad idea but the nature of modern mortgage finance and individual profiles of each borrower means that it is essentially random how the servicers react to any one small group of mortgages. The political pressure will be useless waste of energy. Some of the people will be able to get easily modified and some of them will be essentially impossible to get modified. In many cases it is completely out of the servicers hands as to their discretion to modify some of the mortgages. The first thing people should attempt to do when figuring out if they even have a shot at a sustainable mortgage is try and find out who owns their loan. By knowing who owns the loan and who is servicing it you can then have a clearer picture of what has worked for other borrowers with the same profile by looking at some of the loan modification resources available on the internet.

From the little I have seen regarding loan modifications the modifications given out aren't really designed to do anything other than keep the cash flowing a bit longer before the eventual foreclosure. But their is another twist to it, many of the loan modifications also have a clause that the borrower gives up their right to sue for the way to loan was originally made. So the lender gets cash flow and indemnification from future lawsuits and the borrower keeps paying for an overpriced asset.

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