Last week, mortgage industry representatives made an interesting admission to lawmakers:
Mortgage modifications aren’t doing the trick.
According to Tom Deutsch, Deputy Executive Director with the American Securitization Forum: “While critically important and increasingly employed, industry-led loss mitigation initiatives, including loan modifications, are not a panacea for declining home prices, mortgage defaults and foreclosures.”
Just like yesterday’s discussion of the massive changes to the $700 Billion Bailout Plan, this has direct ramifications for real estate investors. Please read onward…
I’m not a mortgage industry insider. I don’t know whether Mr. Deutsch’s statement is fact or a convenient creation of stubborn mortgage lenders. Either seems possible.
Nevertheless, some reasonably plausible explanations exist for the stated weakness of mortgage modifications as a foreclosure avoidance tool:
- According to Michael Gross, Bank of America’s managing director for loan administration loss mitigation, a lender doesn’t necessarily have the authority to modify every loan, since many loans are subject to contractual obligations with underlying investors (Bryan’s Interpretation: I suspect this is, in part, a coded way of saying that to modify a mortgage may inhibit the lender’s ability to profitably pay out on their deposit account obligations such as CD’s and savings accounts)
- Many home owners have multiple mortgages, and there’s no way for one mortgage holder to force the other mortgage holders to simultaneously modify their terms. (Bryan’s Interpretation: If Lender A and Lender B both have a mortgage against a property, there’s no way either of them are going to agree to take a loss unless the other lender takes a loss too.)
- Resistant borrowers who are in over their heads and just don’t care anymore are refusing to seek or accept mortgage modifications.
I think the real reason the mortgage industry is making a play to convince lawmakers that mortgage modifications aren’t working is in the hope that the government will offer further direct financial aid to the mortgage lenders. After all, the mortgage companies succeeded in convincing our Very Stupid Congress that the entire world would fall apart without government intervention, so why not try the same thing again.
As it turns out, a Very Stupid Congressman, Democrat Barney Frank of Massachusetts, was very quick to demonstrate his lack of ability to creatively think when he said: “I believe we now have a situation that requires legislation.”
Really, Barney? Have you ever met a problem that didn’t require legislation? Remember, Barney ole pal, you were instrumental in creating this subprime crisis (along with your buddy Democrat Senator Chris Dodd from Connecticut) when you legislatively paved the way for the subprime crisis and refused to do anything constructive to resolve it. But I digress…
Forgive the brief rant. It still galls me that there is overwhelming proof that Frank and Dodd were among the primary architects of this mess, yet they still have the nerve – and the full support of their party – in speaking out about it. Yet again, I digress…
Here’s the connection to real estate investors: Just like yesterday’s analysis of changes to the $700 Billion Bailout plan, the news that lenders don’t want to grant mortgage modifications will probably further pave the way for more short sales since short sales are actually a final solution for lenders rather than a temporary “stop the bleeding” type of action, and therefore probably (though not certainly) a preferred way to deal with the problem of defaulted mortgages.
One way or the other, I’m convinced that short sales are going to become a tool of supreme importance during the next 12-24 months.
That’s why I’m placing extremely high importance on finding some good short sale training to provide to you. I’m not a short sale expert, so I’ll seek out a bona fide expert on the topic and share them with you via free teleseminar and/or webinar as quickly as possible.
Do you have a preferred short sale expert from whom you’d like to hear? If so, sound off below. And also, tell us about your experience with mortgage modifications in recent months so we all know what is really happening in the real world of mortgages.
Thank you for reading RealEstate.BryanEllis.com!
*** BIG NEWS: Bryan will host the nation’s leading expert and educator on Short Sale Investing in a private FREE webinar on Tuesday, November 25. Click here to register (no cost).