Banks Hate Mortgage Modifications, Love Lawyers

This weekend on the radio, there was an interesting discussion among a handful of financial and mortgage experts about the banking industry's current fascination with loan modification programs. The participants in the discussion came up with some very good points about the modifications that lenders are currently offering to homeowners in foreclosure trying to lower their monthly bills and how banks use attorneys to pursue foreclosure but do not want to deal with a homeowner's legal representation.

First of all, the banks are beginning to get into the loan modification game because of simple survival concerns. On a mortgage with a high interest rate, they may initiate negotiations with borrowers to lower the rate from, for example, 8% to 5%. Most borrowers who are behind in payments and facing a financial setback may view this as an exceedingly good deal and not hesitate to take it.

However, the banks' enthusiasm to begin modifying some mortgages is based only on short-term survival concerns. Lowering the rate by only a couple of percentage points is just not helping many homeowners. Within six months of a loan modification, borrowers are falling behind again and may even end up right back in foreclosure.

This gives the financial industry all the ammunition it needs when it goes before the United States Congress, states it has been attempting to help homeowners, the modifications are just not working as borrowers fall behind again, and it would be great if the Congress could just give the banks a few billion dollars more to see them through the economic depression.

The lawmakers in Congress, of course, acquiesce to the banks' demands, hand them over several billion more dollars of money taken from taxpayers -- the very people the banks are supposed to be modifying loans for -- and send the lenders back to the foreclosure drawing board. The lenders, in turn, go right back to offering bad modifications and then sending their attorneys in once the homeowners redefault.

This is one more reason why banks love their own purchased lawyers but simply hate dealing with a lawyer who has the morals and ethics to help borrowers facing foreclosure. Some banks are now even recommending that borrowers do not get legal representation when attempting to work out an alternative to foreclosure.

Banks are pushing this line on homeowners for the same reason they originally pushed subrpime, stated income, and no documentation mortgages -- it works out for the banks over the long term but hurts borrowers. Originally, the foreclosure process used to have just a couple of steps:

1. Homeowners fall behind on payments.
2. Foreclosure process begins.

Now, bowing to political pressure, banks have added another step, although the destination is the same:

1. Homeowners fall behind on payments.
2. Banks offer doomed to fail mortgage modification.
3. Homeowners fall behind on modification.
4. Foreclosure process begins.

By offering the poor loan modification solution to borrowers, banks can claim political cover later on when the plan fails. Homeowners are not aware of their rights during foreclosure, so they fall for the bank's offer of a reduced interest rate, even though they know they will not be able to make the payments for the long term.

The lenders have always relied on the inability of borrowers to understand the complicated loan documents they sign to purchase their home. Banks themselves do not understand the documents, but they know that they can create enough money out of thin air to purchase lawyers and whole court systems that will interpret the loan paperwork in the interests of the mortgage companies.

To conclude, banks are beginning to offer loan modifications they know will later default for two primary reasons. First, it gives them political cover when they ask for more bailouts from Congress later on. And two, offering a modification preempts the homeowners' search for a company or lawyer who can help them negotiate a much better deal or determine what lending laws the bank has violated. But this preemption almost always ends up as a beneficial solution for banks and a terrible one for borrowers.

Listed below are more articles related to the above article from the "Mortgages Refinance" article category.

People interested in the above article "Banks Hate Mortgage Modifications, Love Lawyers" are also interested in the related articles listed below:

 

Know the Differences Between Mortgage Companies

If you are a normal mortgage shopper, you would probably think a mortgage lender, mortgage banker, and mortgage broker are all the same thing simply because they all provide mortgages to home buyers and refinancers. However, if so, you would be incorrect and this blunderer could end up costing you a ton of greenbacks.

Obama Mortgage Plan For First Time Homebuyers And Mortgage Refinancing

First-time homebuyers and current homeowners now have unprecedented access to home purchasing power under the Obama Economic Recovery Act of 2009 to help jumpstart the US housing market and the flagging economy. Because of this recently enacted legislation, potential home buyers and current homeowners now have the opportunity to either receive a one-time home purchasing tax credit or refinance their current mortgages.

Why Mortgage Preapproval Pays

Don't be confused with the jargon regarding mortgages; there is a big difference between prequalifying and preapproval. Prequalifying for a mortgage is based on estimates and is not a guarantee that you can get a mortgage for a particular amount. When you are preapproved for a mortgage, you are guaranteed that the bank will cover you for a specific amount based on documentation of your income and expenses.

Scams Plague the Mortgage Refinancing Industry

While your house is probably the biggest asset you own, your mortgage is also probably the largest expense in your monthly budget. Because of this, homeowners have started looking for and considering refinancing to lower their monthly payment. Mortgage refinancing is only one way of reducing monthly payments, increasing home equity, and lowering interest rates, making it more possible for you to own a house in a short period of time. Unfortunately, not only are mortgage refinancing institutions greatly affected by the economic crisis, they are also plagued by the increase in number of scammers in action.

Long Island Home Mortgage Refinance vs Loan Modification

As a Long Island homeowner, there's an important distinction you must be aware of: mortgage refinance versus loan modification. A mortgage refinance option is available for homeowners who are current on their mortgage, but want to take advantage of the new, lower market rates on mortgages.

The Top Three Mortgage Mistakes Home Buyers Make

The majority of home buyers create a series of simple to prevent mortgage mistakes that cost them $1,000's each time they purchase a house. We will discuss the most common home buying mortgage missteps in this article.

Fixed Rate Mortgages During Economic Downturn

After 18 months of economic downturn, banks appear to be willing to lend out money again. Fixed rate mortgages appear to be one of the most popular forms of mortgages. Despite the risks taken by the lender, they appear to be the best kind of loan for the borrower as they have a stable sum of money to payback each month, which means they can mirror their finances on the monthly payments.