Columbia Profs Weigh in on Loan Modifications
Three Columbia professors recently issued a proposal to prevent foreclosures through loan modifications. Their idea: pay the servicers an incentive to do them.
You need a Ph.D to come up with that solution? I’ve been suggesting for the last 18 months that the investors are delusional if they think they’re going to get adequate servicing while only paying the industry-standard, razor-thin fees to loan servicers.
However, I think you need to go further, because getting the loan modification done is only half the battle. If they truly want these loans modified, and they also want to reduce recidivism, they need to be paying third parties to make sure that these borrowers gain a solid footing during the review process, and strategic planning for the next 12 months.
If we’re just going to “do more loan mods,” then we’re still looking at less than a 50% success rate. When you consider that a foreclosure sale entails a $30-60k loss, it seems to me that you spend an extra grand to get some financial guidance for these people. Unless, of course, you think that a 40% success rate is acceptable.
The professors have also missed the mark in their comments. They claim that the servicers of securitized loans are lagging behind, while Fannie Mae and Freddie Mac are leading the way on loan modifications.
As a person who deals with defaulted loans on a daily basis, I can tell you that this is not the case. Fannie’s latest “program,” the HSA (Homesaver Advance) is an abomination… a joke of a program, that’s being used in places where modification is much more appropriate.
Furthermore, they’re awfully stingy on payment relief. I acknowledge the fact that most agency loans already have relatively good rates, but are we just looking to postpone the inevitable foreclosure, or are we looking for sustainability?
And by the way, when I talk about strategic planning for homeowners who are trying to prevent foreclosure, I’m not talking about biased guidance from the loan servicer, nor am I promoting the watered down swill that passes for “foreclosure counseling” at the not-for-profits.
I’m talking about an in-depth financial review to find every possible opportunity to improve a borrower’s monthly cash flow, as well as strategic planning for making better financial moves in the future.
While all of my clients are in default due to unforeseen circumstances, not one of them shows up with a cash flow statement that doesn’t have numerous opportunities for significant improvement.
THAT is the difference between an industry-average recidivism rate of 58% on loan modifications (in the first EIGHT months), and a 12-month average of less than 10%.
IF we are serious about preventing foreclosure, then it’s time that someone stepped up, and some money started flowing in this direction.
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Tags: Columbia, Fannie Mae, foreclosure counseling, Freddie Mac, Home Saver Advance, HSA, loan mods, loan servicers, professors