California Loan Modification Reform
If The Obama administration can't coax mortgage providers in California into action, perhaps they can shame them. While pushing forward the Mortgage Modification program designed to help millions of American citizens avoid foreclosure, they have been naming the worst banks to try to shame them into changing their policies.
Banks usually realize that it is in their best interests to help homeowners make the necessary loan modifications, because foreclosures are costly for them as well- if they're not being myopic, they'll realize that a healthy housing industry will result in more profits for them. But getting a mortgage lender to reduce interest and be reasonable with loan mods is easier said than done.
But according to the government, the leader is Saxon Mortgage Services (a subsidiary of Morgan Stanley), and JPMorgan Chase and Citigroup are also showing willingness to cooperate with the administrations goals and help homeowners out.
The worst of the bunch? Wells Fargo, and Bank of America, with around only five percent of its loansin trial modifications. The White House has responded to this poor showing with their "Mortgage Plan", a requirement that all borrowers go through a three month trial period to prove they can make payments on time before they get caught up in the full-fledged loan. If the goal is met, the borrow gets a cash incentive that reduces the amount of principle they must pay in the future. And there are even more incentives involved in the Mortgage Plan: three thousand dollars off the principle for every year that payments are perfectly paid.
But it's an uphill battle. Banks are often not equipped to provide loan modifications on the fly because it's a fairly new concept and is often just not profitable. In the old days, banks existed only to lend, collect, and process mortgage payments. They would be engaged in many kinds of investments, but the retail sector was their tried and true method of garnering profit. It was up to separate debt relief companies to provide services for helping homeowners consolidate their debt or mitigate their losses. Many banks find it difficult to set up loan modification systems: they have train staff, make new decisions, set protocols and guidelines, engage in a new kind of management that may be utterly foreign to them. Big banks are usually pretty uneasy with such a high volume of sudden change.
And secondly, banks make decisions based on profits. They only want to take actions that will benefit their profit margin, and loan modification doesn't always fall under that category. Encouraging banks into making decisions that will result in cash loss is no mean feat. Perhaps that is why shaming them into it seems to be working better.
So from the perspective of the homeowner, these policies are a good thing. However, if you own a bank, you may be less than pleased.
Banks usually realize that it is in their best interests to help homeowners make the necessary loan modifications, because foreclosures are costly for them as well- if they're not being myopic, they'll realize that a healthy housing industry will result in more profits for them. But getting a mortgage lender to reduce interest and be reasonable with loan mods is easier said than done.
But according to the government, the leader is Saxon Mortgage Services (a subsidiary of Morgan Stanley), and JPMorgan Chase and Citigroup are also showing willingness to cooperate with the administrations goals and help homeowners out.
The worst of the bunch? Wells Fargo, and Bank of America, with around only five percent of its loansin trial modifications. The White House has responded to this poor showing with their "Mortgage Plan", a requirement that all borrowers go through a three month trial period to prove they can make payments on time before they get caught up in the full-fledged loan. If the goal is met, the borrow gets a cash incentive that reduces the amount of principle they must pay in the future. And there are even more incentives involved in the Mortgage Plan: three thousand dollars off the principle for every year that payments are perfectly paid.
But it's an uphill battle. Banks are often not equipped to provide loan modifications on the fly because it's a fairly new concept and is often just not profitable. In the old days, banks existed only to lend, collect, and process mortgage payments. They would be engaged in many kinds of investments, but the retail sector was their tried and true method of garnering profit. It was up to separate debt relief companies to provide services for helping homeowners consolidate their debt or mitigate their losses. Many banks find it difficult to set up loan modification systems: they have train staff, make new decisions, set protocols and guidelines, engage in a new kind of management that may be utterly foreign to them. Big banks are usually pretty uneasy with such a high volume of sudden change.
And secondly, banks make decisions based on profits. They only want to take actions that will benefit their profit margin, and loan modification doesn't always fall under that category. Encouraging banks into making decisions that will result in cash loss is no mean feat. Perhaps that is why shaming them into it seems to be working better.
So from the perspective of the homeowner, these policies are a good thing. However, if you own a bank, you may be less than pleased.
