Can mortgage mods cut the red tape?
Your adjustable-rate mortgage soars and renegotiating means the difference between making good on your payments or defaulting altogether. Whom do you turn to? Turns out, in the era of mortgage-backed securities, the answer is trickier than it sounds. A recent NPR Marketplace story explains how mortgage-modifications have been way slower than expected, simply because there’s so much vagueness in the rules and responsible parties involved.
It’s not an easy problem to solve, but it’s definitely a critical one. Banks would surely rather have mortgages with payments flowing in versus mortgages that are totally frozen in non-payment; so would investors in bundled-loan securities, to whom these payments ultimately flow. On the other hand, what are the “right” mortgage terms, fairly reflecting current real-estate values, the homeowner’s ability to pay, and the rights of investors in mortgage-backed securities?
Do you know anyone who’s modified an underwater mortgage so they could afford it again? What’s the most successful and equitable model for everyone involved?
[image: Nastro Isolante by piermario on Flickr]
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Comments
Follow commentsJeffD posted August 20, 2009 (08:49PM)
In the 1st instance a couple was breaking up and they had no equity in the home and informed the lender that they were going to walk away from it. They said OK, and had someone out there pretty quickly to handle things. They took the keys and let the people walk.
He dropped the price some 20 to 30% I believe, put a sign in the yard, marketed it aggressively and sold it pretty quickly. They took a hit, but it was a relatively quick and painless process otherwise.
In the other case, a homeowner saw the handwriting on the wall as his industry was getting hammered. He cut expenses to the bone and put his house up for sale. He couldn't sell it in time, however, and lost his job. But he did have some interested buyers and had negotiated a price that was pretty close to what he owed on the home.
I don't remember all of the details, but it was a red tape nightmare for the guy, people at the lender's office didn't seem to have any authority nor knew who did. They repeatedly didn't follow up on promised return phone calls etc. It was almost a done deal, but after months of agonizing frustration, the buyer finally gave up and walked away.
The original homeowner left or was evicted somewhere in the process and despite valiant efforts to save the lender a loss gave up on it as well.
The realtor said the home sat vacant for many months before they ever got an appraiser out there and by then things had been run down, the yard and landscaping were overgrown etc., housing prices had dropped much further and when they eventually got it on the market after having to pay people to get it back in shape for a sale, they had to mark it down far far more than the price they could have easily closed on. The work had already been done for them. But it still sat vacant months later, and they were paying the taxes and very high insurance rates on a vacant building the whole time. Now there are vacant homes all over the area and they are probably really going to get hammered.
It sounded like a case study on stupidity in such a process.
bigdog posted August 21, 2009 (10:41AM)
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