NPR hits the nail on the head about a homeowner who successfully got a loan modification. The question now becomes... Now what?
Salter needed to lower his $2,300 monthly payment because he lost his job as a human resources executive — and with it, 40 percent of his family's income.
It took a year, but his lender, Chase, offered to extend the mortgage from 30 to 40 years and lower the interest rate from 6.8 to 2 percent. That would cut his payment roughly in half, which makes Salter's initial reaction to the offer seem bizarre.
"I call it extortion," Salter said. "Government-backed extortion. I mean, who in their right mind would accept this? No one would. No one should."
The mortgage modification solves a short-term problem: It allows Salter to stay in his home. But it doesn't address a long-term issue. Salter's mortgage is about $300,000. Today, his home is worth $125,000. He's underwater.
To prevent fraud and to gain on any upside in housing lenders will defer principal to the end of the loan. The balance isn't due until the end of the loan. This borrower got $107,000 deferred. He is just now realizing he is renting the home from the bank. He always was. I just wonder how many loan mod success stories will come to the same realization.