Mortgage modification has been a topic in some of my recent Indiana bankruptcy blog posts.
As part of my bankruptcy services in Indiana, I’m quote often called upon to assist with mortgage modifications and negotiations with lenders. This process can be quite frustrating for all concerned, because, as I pointed out in former blogs, a number of significant problems keep cropping up.
First, the original mortgage lender and the bank that’s servicing the loan are often two entirely different entities. In fact, often the owner may be a group of investors who bought mortgage securities. The second big problem is that most servicing companies have not increased or trained their staff to handle the extensive mortgage modification paperwork.
I was very interested to read a Washington Post article reproduced in the Indianapolis Star offering some insight into mortgage modification from the banks’ point of view. “Despite federal policy push, modifying all distressed loans isn’t profitable,” explains the Post.
There are three general categories of situations, reporter Renee Merle explains.
Situation type #1: Borrowers, because of their job status or other factors, are likely to fall behind even after receiving a modified loan.
Situation type #2: Borrowers, based on their earning power and assets, can somehow, (perhaps at some sacrifice), catch up on their delinquent payments without a modification.
Situation type #3: Borrowers who, without a modification of their mortgage, would never be able to keep up, but who would be able to keep up under more modest payment terms.
The federal administration has offered lenders billions of dollars in incentives to modify home loans in an attempt to restart the stagnant housing markets. Even so, modifying a mortgage is profitable for the bank only in Situation #3.
In the meanwhile, foreclosed homes are “flooding the market”, to use Merle’s words. Nationwide, only 200,000 mortgages have been modified, compared to the 1.5 million homes subject to foreclosure notices or proceedings since the program launched in March.
The Indianapolis-Carmel area has fared better than many other metropolitan areas, with the number of foreclosed homes falling by 12% in the first six months of this year.
The professionals in my four Indiana bankruptcy law offices continue to do what we can to help clients navigate the mortgage modification system and to explore all their options.