Many Americans are Hoping for a Loan Modification
HOPE!
wikipedia defines hope as:
“A belief in a positive outcome related to events and circumstances in one’s life. Hope is a feeling that something desired may happen, when the outlook may or may not warrant it.”
When I traded stocks I was taught that four letter words hurt you as a trader more than they helped you. The main bad words were FEAR and HOPE.
FEAR kept you from fully maximizing on your trades and HOPE kept you in them long enough to pay the hefty price.
Now as a Real Estate Broker I meet people who are in danger of losing their home to foreclosure. Like stocks, the real estate market has its ups and downs. And like stocks the same emotions play out. Fear and Hope are prevalent. Of those I think HOPE is worse, its hurting people more than just having a foreclosure.
EXAMPLE
We will call this person Tom,
Tom was behind on his mortgage three months and $14,000 in back payments not including fines and looming legal fees. Based on public record I knew he was in need of my services and offered to do a short sale on his property. He told me that he was working on getting a loan modification. It made sense, he was working but went thru a divorce and this hurt his ability to stay current. He just had to prove to the lender that since the property had lost 50% of its value it would be in their best interest to work with him. So he had his buddy refer him to an attorney who was going to work on the loan mod. The attorney charged him $4,000 to work on his file and off they went.
Five months later the banks responded… DENIED! Tom thinking that his attorney didn’t know what he was doing fired his loan modification company and hired another one he heard on the radio, they charged him $4,500.
One month later after the loan mod company didn’t return any phone calls or emails he decides to visit the location only to find out that the business had gone bankrupt, Ouch! (people still think radio and tv add credibility!)
But he was still hopeful so he paid a third company $3,000 to help him. This company did work on it like the first had and three months later he got his answer. DENIED! What!! how could this happen, it doesn’t make sense. The government said that programs exist and that banks had to help people!! Arrrrgh!! How could this happen you say, it doesn’t make sense, banks took tarp money!!!!
Well what happened is the investor sold the note the moment that Tom’s loan went into default. Huh? what does that mean you say? That means that the servicer or bank as most people know them (Bank of America, Chase, Citi) don’t own the loans. Investors do,banks hold a small number of loans but not many. So the many investors who do own these loans sell them to other investors who buy bad debt. Sometimes the same attorney who helped your on the loan mod is buying bad debt to resell. (yes it happens, I have had bank reps tell me that attorneys are there best note buyers, especially on second loans.) Don’t act surprised, these are the waters you enter when in these situations.
Most investors don’t know the homeowner and yes they don’t care. All they know is that they lent money for the purpose of collecting a profit, short or long term the word is PROFIT. Like your 401k at work, you save to be able to retire and live off the interest. Some of these loans were actually purchased with other peoples retirement money but that is a whole other topic for another day.
So again, without the homeowner even knowing, the investor sold that $380,000 note for $90,000 (property worth 180,000) The new investor has purchased the note for ONE REASON, LIQUIDATION. The old investor probably did it for tax breaks , or maybe his buddy buys it to resell, who knows, the point is money is moving. and Toms house is the prize!
Not FAIR right, well there’s another four letter word for you. Maybe they have LUCK, and Tom needs real HELP, see a pattern here?
We spoke with an exec at Bank of America who admitted that only 10% of loan mods have been made permanent. Of those 10% they did, 80% re defaulted. So why are the banks pushing them if they really don’t help??? Well like we said earlier, gov programs! They have to try and help even though many people will be denied, its called Public Relations!
But back to Tom…
So after Tom paid $11,500 of hope money he was told SORRY. We are foreclosing next week! So again hopeful Tom sues the bank which delayed the foreclosure for a week. And then the day came, FORECLOSURE! No stopping the train, this was done and done. Right?
Well hope reared its ugly head again, this time he hoped that he could reverse the foreclosure and hope that the bank could not make him leave his home. After a couple of misfiled court documents and other delay tactics he was eventually evicted.
So hope won him
$11,500 in fees, foreclosure and finally eviction, all in his credit record for him to keep for 10 years. From here on he can HOPE to get cell phone or lease on apartment in the near future.
This is a real scenario by the way. I have been in situations where the banks have screwed up and this was the only tactic left. But this was not Tom’s case at all.
Tom should have short sold the home. He owed about $400,000 for a home that was worth $180,000. What if he was successful with the loan mod? What did he actually accomplish? He would really be renting his home without a landlord. It would be a temporary fix at best. He would be responsible for repairs, insurance, and taxes only to have issues with the loan in 2 to 5 years. He could have rented a MUCH, MUCH NICER HOME while his credit improved.
The WORST PART OF THIS STORY is he would be ready to buy right about NOW because this happened 2 years ago. He would have been eligible to buy again. And those 11k would have been perfect for a down payment.
I guess when it comes to business, hope and money don’t mix!
Michael-Edward Cruz
California Real Estate Broker 01758933
760-689-BANK (2265)
http://www.mikerebroker.com
http://facebook.com/mikerebroker
: 41.635, -0.295) Chase are all adapting to the new reality by hiring more staff with proper short-sales training. The fact that banks are willing to accept these sales should limit the housing market’s downside in the year ahead.