Why is it so hard to get a loan modification now?
Chances are, someone you know is struggling with their mortgage.
Maybe it’s you, and if so, you can’t understand why your lender is not making more effort to provide relief.
Judging from the number of “war stories” posted on the Internet, it appears that the entire lending industry has conspired to ignore consumer needs.
The frustration level is high, and I am not about to discount or minimize the stress and pain that is out there.
If you are the one facing this problem, you have lots of company.
According to the Center for Responsible Lending, California has experienced 311,000 foreclosure sales between January 1, 2008 and September 30, 2009.
As of September 30, 2009, approximately 970,000 properties were past due on their mortgages. To put this in perspective, there are nearly 9 million single-family and duplex properties in the state. (The U.S. Census Bureau shows 8,142,400 units in the year 2000).
Allowing for a very modest annual growth rate of 2 percent from 2001 to 2006, we come close to 9 million dwellings. Doing some very rough math, we can say that about 3.5 percent of those properties were foreclosed in the 21 months ending quarter 3 of ’09.
Another 11 percent of homes and duplexes were in default at the end of quarter 3, 2009.
Now that we have framed the extent of the default/foreclosure situation in the Golden State, let’s look at some of the reasons why mortgage modification is so difficult.
One obvious problem is the lack of staffing to process the number of requests.
The State Foreclosure Prevention Working Group (or the SFPWG) is comprised of attorneys general and state banking agencies. The working group notes that the number of delinquent loans has doubled between October of 2007 and October of 2009.
Further, 33 percent of loan modifications were resolved in October of 2008. In October of 2009, the number had shrunk to just over 14 percent.
If you are seeking a loan modification and the lender has filed a notice of default, your loan may be in the hands of two different departments.
It is possible that these departments are in separate locations. Even if they share the same address, it is quite possible that they are not talking to each
“The potential for miscommunication is significant” said the State Foreclosure Prevention Working Group.
Please note that governmental oversight, via the Home Affordable Modification Program (HAMP), has added more layers of compliance responsibility. In attempting to help distressed homeowners, the additional bureaucracy has compounded the problem — thus far.
If you’re lucky enough to have a viable modification in process and there are no default proceedings on your home, the average timeframe for resolution is approximately six months.
It is important to note that payment reductions are common, but principal reductions are virtually unheard of.
Clearly, a loan modification will be lengthy, frustrating and unlikely to deliver the measure of relief that is desired.
The working group has made a number of suggestions to improve the situation, but I am hesitant to enumerate them here. While some of them are sensible, they could act as a magnet for undeserved modification requests.
If you are being ignored, there may be other reasons besides the sheer volume of requests to be processed.
Paul Willen, senior economist for the Federal Reserve Bank of Boston, testified before the Senate Banking Committee in July of 2009. He stated that “a third of the borrowers in our large sample are current on their mortgages or repay a year after they become 60 days delinquent.”
This is known in the banking industry as “self-cure,” if you leave borrowers alone they have a 33 percent chance of correcting the problem on their own.
More damaging is the fact that one third of borrowers who receive a modification end up defaulting again.
From the bank’s point of view, either the problem will go away on its own, or they will end up with the property even if a modification is offered.
Bottom line, the odds of cooperation from the bank are not in your favor.
In closing, I hope this column has provided more insight to the problem at hand.
In the next Mortgage Matters I will speak my mind about the magnitude of the challenge before us.
David Ryland is the acknowledged dean of loan originators at Big Valley Mortgage in Roseville. He has 30 years of experience as a loan officer, manager, trainer and mentor. He can be reached at