Yesterday, I told you about the lending industry’s resistance to mortgage modifications as a solution to the foreclosure crisis.
It turns out that there’s another huge reason for lenders to dislike the use of mortgage modifications: Mortgage Modifications usually don’t work out.
According to Lender Processing Services, a mortgage payment processor that monitors 39 million of the 50 million mortgages in America:
- “For the industry in general, after mortgages are modified roughly 25% go delinquent again after just one post-modification payment”
- “More than half end up delinquent after several post-modification payments”
Let’s put this in plain English terms:
If 1,000 mortgages are modified, 250 of them will make at most one payment under the modified terms and then will default again
Of those same 1,000 mortgages, more than 500 of them will end up in foreclosure yet again after only a few months.
My friend, these are awful statistics demonstrating that the problem isn’t the mortgages, it’s the borrowers who never should have had a loan (of any type) to begin with.
Before the more sensitive among you get your panties in a wad, take note: This isn’t a suggestion that all foreclosure victims are fundamentally bad people. I know there are lot of people who had good jobs and were fully qualified for their loans are now unable to avoid default due to layoffs and other legitimate issues. But those aren’t the folks who are at the heart of this issue: It’s sub-prime borrowers who never should have gotten the loans in the first place, regardless of the terms.
Thanks for listening to today’s rant. Now let’s get back to some practical application:
Short Sales, as I’ve mentioned in the past several days, are going to be a key going forward. And frankly, it might be helpful to point out the horrible stats about mortgage modifications to loss mitigation reps when you’re negotiating short sales.
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As always, your comments are welcomed here at RealEstate.BryanEllis.com – and I encourage you to join our free upcoming Short Sale Training. Have a great day!
Wow, it’s a hard pill to swallow. I guess it’s a wake-up call that not everyone is financially/mentally prepared for the “american dream of home ownership”. Although we would like to think that everyone who wants a home, should own one, this seems to be evidence to the contrary.
Thanks for the wake-up call.
The problem with loan mods and their failure rate is due to the fact that most institutions are not willing to modify any terms until the borrower is 90days late. That leaves all the people fighting to pay the mortgages, and doing so, at the back of the line. Barney Frank wants those 90+ day lates to go to the front of the line for loan mods (idiot). All that tells borrowers is to default, as they won’t get any assistance until they do!! Brilliant ideas coming out of the govt…
One of the things about Barney Frank and Dodd both is getting as much attention on anything else so they don’t get investigated. The two of them are at the heart of the current mortgage meltdown and they know it.
Does McCarthy ring a bell in anyone’s head?
Once again it is a government regulation that requires the banks to wait until you are 90 days behind before they can do anything for a customer. Do you hear any talk by those idiots Frank or Dodd to change any of that? NO!
Chris B
But the point is 500 were able to keep their property!
I think that number makes it worth the effort?
Right???
A 50% success rate is fantastic in my book!!
Right???
There’s enough investment opportunities for all of us.
I suggest that before anyone attempts a “short sale” they should check with a qualified tax attorney or a tax accountant, preferrably a CPA, my understanding is that you would be taxed either as ordinary income or as a capital gain on the portion of the mortgage that was forgiven.
Short sales and foreclosures are no longer taxable income if its on a primary residence. No need to pay a CPA when you can go to the IRS web site and see it written clear as day.
DG: On IRS no longer taxing difference on short sale..do you happen to have the link? THank you.
cj
Sad stats, I agree. However, it should be noted that from a borrower’s perspective a good portion of these are falling apart because after one or two payments the lender is not forwarding the terms in writing and so the borrower’s are stopping making payments. They can’t get the originally outlined terms in contract form. I’ve encountered three people in just the last week that have had this happen. After fighting with the lender for months, and being elated they have saved their home, only months later to find the lender won’t fulfill their offer so they walk away. It is a shame what the lenders are doing to these homeowners. Instead of fighting for months with lenders it would be beneficial if those borrower’s close to FMV could refi into 3.25% loans with a small principal writedown, if necessary, it would save tens of thousands of homes from foreclosure and the mortgage companies billions in avoiding more foreclosures.
I watch the NODs daily and this wave of foreclosures is picking up at a drastic pace in these last few months, so it would behoove lenders to try and save those that are obviously suffering from recessionary income depletion. Just my two cents from the front lines.
I specialize in short sales, which is almost always a better route for the homeowner and the lender, which they will hopefully see after months/years of denying the numbers.
Also, I believe it is IRS Form 982 that the honeowner needs to file with their 1099. This allows the taxpayer to avoid paying taxes on the deficiency, if their financials show they are either insolvent or unable to pay. It’s still wise to see a CPA depending on the value of the 1099.