Thanks Ted. Now how does all of this relate to Obama "cracking down on mortgage companies that are failing to do enough to help borrowers at risk of foreclosure"?
Is this kind of like preventing an AIG-like fiasco, where federal bailouts went toward their annual junket to a resort here in south Orange County, CA? If so, I figure such oversight should have been in place from the beginning. Better late than never, but I guess those advocating bailouts wanted to just hand out the money now, then figure out the details later.
No to your question.
Banks don't like to modify loans.....in fact, they don't like to work with borrowers who are in trouble. Many refuse to do modifications like the one I outlined in my previous post. Many refuse to modify period. And keep in mind, the modification I proposed was a fairly liberal one. Most banks won't do such an 'extreme' modification. Recasting interest is delaying a bank's profit......for obvious reasons, the banks don't like delays in getting their profit. So instead, a more likely modificaiton is where the borrower repays the missed interest in a much shorter period of time.
For an example......say your monthly mort. payment is $1000. Of that amount, interest is $900; principle is $100. You've missed 10 months of interest.....that's $9k. They will want to recapture that lost interest in the shortest period of time....usually a year or less. So then, as a possibile forebearance/modification...for the next 12 months, the bank will require the borrower to pay $1750 per month of which $750 is the missed interest until the missed interest is paid. Now if you are a borrower whose struggling with the payment of $1000 per month, you are not going to be too happy with the new arrangement proposed by the bank.
I haven't read the Obama proposal but this is where I suspect it will step in.....they will try to get those banks that don't currently modify to offer modification plans.......and to make those modifications less rigorous than the one I just outlined in the prior paragraph. Keep in mind the Obama proposal will have some clout because one of the banks with the biggest inventory of home loans is BAC. And BAC owes the feds. Otherwise, I don't seeing it be very successful. |
