July 6th, 2009:

Mortgage Modifications Just Got Tougher

Jul 6th, 2009
by Doug Jacobs.
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New legislation introduced, allegedly at the request of California Governor, Schwarzenegger, will make it tougher to get a mortgage modification.  This legislation, California Senate Bill 94, includes language that says that attorneys can’t be paid for helping a homeowner apply for a modification until the process is completed!

Frankly, attorneys aren’t used to working that way.  They’re used to being paid for the work they do as it is done; not afterwards.  Most attorneys, facing several hours of work, request a retainer from the client in order to insure that the costs and fees incurred get paid.

A standard modification can take three to six months to complete.  During that time the attorney is working hard on the matter, has to pay his staff, his office rent, his expenses, and his mortgage!  Forcing him to wait until the process is over is asking him to lend money to the client.

Not only is this bad business for the attorney, it immediately creates a conflict with the client.  Now, the attorney is forced to get a modification (else he won’t be paid), rather than give the client his best advice which might be to walk away from the house or file bankruptcy if the lender won’t offer a workable solution.

All in all, if this becomes law, I think you’ll see an immediate drop in the number to attorneys willing to attempt a mortgage modification.

Banks lose big when they foreclose

Jul 6th, 2009
by Cathy Moran.
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Modifications are down in the second quarter of this year, and foreclosures are on the rise, reports New York Times reporter Gretchen Morgenson in a piece entitled So Many Foreclosures, So Little Logic.

My experience in the San Francisco Bay Area is consistent with the theme that modification are few and the degree of change in the troubled mortgage is limited.  Seldom is the principal reduced to reflect today’s value.

But the figure that caught my eye was this:  banks who foreclosed lost  an average of 65% of the loan balance! The figures come from a study by Valparaiso University professor Alan While of some 3.5 million subprime and alt-A home loans managed by Wells Fargo Bank.

You have to ask why those managing these loans think that modifying the loan will incur an unacceptable loss for the note holder.  The loss could hardly be greater than 64%.

Who will hold those making these decisions accountable for the loss imposed on the note holder?  And the cost to the country as  a culture of home ownership is shredded is incalcuable.

Morgenson expects that ultimately the taxpayers will have to pick up the cost, but only after families have lost their homes.