Modifications Egging Re-Defaults Leading to Foreclosures
The much hyped plan of the Obama government offering incentives to all parties concerned in the instance of troubled mortgages is not working out with reports of re-default coming in following modifications. Two of the victims are Samantha and Steve Jensen. Six years ago they had bought a house in Scottsdale in Arizona for $550,000. This seemed to them the perfect nest to rear their three children. But when their ARM loans began to reset to higher niches they found they could not afford the monthly jump from $1,000 to $3,300. Thus when the bank agreed to modify their loan by reducing interest rate, they were understandably relieved.
As per the new agreement they were to pay per month $2,600. Later they found out that property taxes were due. Adding all this up led to their monthly payment jumping to $3,500. They got the loan modified in June this year and are now already lagging behind two months in payment. Foreclosure seems imminent. Samantha complained, “The bank could have done more and reduced our principal. You have the anticipation of relief and then you realize it’s not going to make it better. It’s like being punched in the stomach twice.” Modification of the mortgage can be done in many ways. Lenders can permit the borrower to jump few payments and add these to the loan amount.
They might bring down the interest rate, stretch the loan period or bring down the total loan amount by waiving part of the principal. Many of the lenders contend that bringing down the principal is generally not done – except as the very last resort for modification when there are no other options. More than 80% of the modifications done by Wells Fargo during the last three months have permitted lower payments for the borrowers but most of these have reduced rate of interest.
Over 240,000 modifications have been effected by the bank and over 30,000 executed following the guidelines of the Obama programme. CitiMortgage claims to have effected 92% modifications by bringing down interest rates and or stretching loan period. 8% were able to have their principal reduced. It is complicated and difficult to provide relief to the borrowers because the lender does not comprise of one entity. Innumerable mortgages were parceled, sliced and sold to various investors right across the globe. The servicers contend they do not have the right to modify loans.
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