St Louis Mortgage: Loan Modifications Not As Profitable As Foreclosures
What is interesting regarding the national bailout effort since April 2010 is that the U.S. Treasury Department has been paying companies that collect mortgage payments and examine pleas for assistance a $1,500 stipend for approving the sale of homes for amounts less than the loan balance. This is known as a short sale.
Now here is where most would say this is a nice set up. These companies would also get an additional $1000 for each loan modification that is completed plus additional stipends over a three year period if these homeowners stay current.
Sounds easy but it is not. First there’s not enough personnel to save the millions of home that are 90 days behind on payments nor are there enough real incentives according to St Louis home loan experts to see this huge debacle to the end.
The irony has become quite clear that servicers make more money foreclosing on a person’s home than trying to help them save it.
Diane Swonk, chief economist of Chicago-based Mesirow Financial says that “the incentives being offered by the government are small compared to the counter-incentive of foreclosure.”
She continues: ‘The mortgage service industry has its own set of incentives, and you can’t tell people to do what’s not in their financial best interest, especially in an economy that is still struggling or dying.’
Now it seems, according to Swonk, that free enterprise even in a downturn economy such as ours can rightfully advocate greed over doing what is morally right and in the best interest of the homeowner.
And yes, this has become a double-edged sword so to say. The second quarter of 2009 showed that modified homeowners has missed at least one loan payment as reported by the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
If we look closer at these statistics, about twenty-three percent of these very loan modifications were 90 days overdue.
Thus, millions of consumers wonder if loan modifications are really working or have we given them a fair amount of time to actually prove themselves workable.
Either way, here’s the interesting part of this whole scenario. These servicers may not lose money in a re-default after-all, said Marie McDonnell, owner of Truth in Lending Auditing & Recovery Services in Orleans, Massachusetts.
The fact remains that these servicers will get their money no matter what happens. How? If a person cannot meet the terms of their new modified loan or if the short sale is not approved by HAFA, the property goes into foreclosure and when sold, the servicer gets their new found income.
The truth be told, the majority of servicers prefer loans that are in default since most of them turn into cash cows. So, why are foreclosures more profitable than loan modifications?
It is because of the fees. When a loan if 90 days or more late, these servicers can now charge processing and foreclosure fees not to mention markups for attorneys and appraisers.
Plus, keep in mind the late fees that have been added to this property which can be substantial when you consider it could average 5 percent of the monthly payment.
For example, on a local level, a St Louis foreclosure on a $200,000 mortgage may result in $10,000 or more of income for servicers who surprisingly get paid before mortgage investors.
Rumors have it that on the average, servicers can easily make 10 times the amount more than any of the government stipends being offered by simply foreclosing on the house.
It is only a matter of time time as mortgage investors fight to minimize such losses due to the fact that servicers are first in line to receive payment upon the sales of the foreclosed property.
In a more shocking turn-of-events, Washington D.C. politicians rejected new legislation several months ago that would have given bankruptcy judges the power to reduce mortgage balances and interest rates.
The cram-down law would have indeed helped these homeowners who deserved a modified loan by giving them more affordable terms to continue paying on their mortgage.
By killing this bill, servicers have been given the free reign to legally decide which avenue is more financially advantageous to themselves thus in a capacity to choose which bailout program to offer to the down and out homeowner. Thank you Capitol Hill.
When a consumer wants to know more about a St Louis home loan, they visit Floyd J. Tapia’s site at http://www.LibertyLendingConsultants.com/St-Louis-Commercial-Loans on how to choose the best St Louis refinancing loan consultant or give us a call at 314-334-0210.
Processing your request, Please wait....
