Loan Modification
Is anyone else skeptical of Chase Bank’s newest efforts to do loan modifications for up to 400,000 of their customers? Call me a stick in the mud, but I have a hard time believing that banks are doing this for their client’s benefit. To me it seems like they are doing this for their bottom line and their shareholders.
In this morning’s Arizona Republic, Russ Wiles wrote about the opening of a Phoenix homeowner center to allow Chase Bank to “get up close and personal with troubled homeowners.” Chase is going to “help” 400,000 of its customers stay in their homes. This includes homeowners facing foreclosure in Prescott, Prescott Valley, Chino Valley, and Dewey-Humboldt. See the whole article.
The problem I have with Chase’s plan is that many homeowners are going to be stuck with homes that are going to be underwater for years and it’s unlikely that many of them will emerge stronger financially. And most of them will fall into foreclosure anyway in the long run because banks are focusing on reducing the interest rate of loans rather than reducing the principal. See Bloomberg article.
But any delay in the foreclosure, even by a few months, adds cash flow to the bank, mitigates their immediate loss, and allows them to issue press releases on how they are taking care of their customers.
The bottom line is that banks know that its in the bank’s best interest not to have the homeowner walk away from an upside down home. Depending on what study you read, it costs a bank about 20% – 25% of the cost of the loan to foreclose on a home, and in a declining market, even more:
According to mortgage financier Freddie Mac, the typical foreclosure cost is nearly $60,000. And officials at HSBC, North America, parent of HSBC Bank USA, HSBC Mortgage Corp. and HSBC Finance Corp., say their average loss on sale at foreclosure is 20 percent to 25 percent of the loan’s value.
“We truly believe that foreclosure is the worst alternative for all parties concerned and go to great lengths to avoid foreclosure,” Brendan McDonagh, CEO of Illinois-based HSBC Finance and former chief operating officer of HSBC Bank USA in Buffalo, said in March testimony to Congress. “Financially, it is our worst alternative.”
via The Buffalo News
I personally believe that foreclosure and short sale are the cleanest ways for people to get out of their upside down homes if banks are not offering a reduction in the principal. Don’t let the bank turn you into a mortgage slave.
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This article is very interesting in that you would only hope that they even do half of the loan modificaitons they say they are going to do. 400K sounds like a big number, but lenders out there aren’t doing that many and are holding up homeowners to get the paperwork through. It is unfortunate more people haven’t had a chance to take advantage of Obama’s attempt at saving the economy. Thanks for the information.
Great article, they do need to do more than currently happening, what about the poor negative equity folk..
The poor negative equity folk did not buy at the right time and did not put enough down on their homes…I am in this boat, but don’t blame anyone but myself…people have to stop pointing fingers and take responsibilty for their actions…
I’m actually starting to see successful loan modifications with loan balance reductions. Has the tide changed since this article was posted?
Mauricio: I have not witnessed this personally, where are you seeing this trend?
Thanks for your comment!
PS
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This is an excellent article. Thanks for the information.
Dear Patrick,
Great article! I agree with you. I also would like to add couple more alternatives to those homeowners who want to stay in their homes.
There are two products those aren’t widely knowing and common in the market place. Trsutee Foreclosure Delays and Loan Re-Write.
Did you know that Homeowners are illegally being foreclosed on especially in Trustee States?
In Judicial Foreclosure states, a judge reviews the legality of the foreclosure proceedings to ensure the homeowner is being protected against greedy lenders and yet still the lenders are not properly following the foreclosure laws correctly (see this article: http://www.nytimes.com/2009/08/31/nyregion/31judge.html?_r=2).
In Trustee States, lenders employ a “third party” trustee company to replace the legal function of a judge and orchestrate the foreclosure process. If banks are not legally foreclosing when they know a judge reviews the case what do you think they are doing when they only have to go through a trustee that they pay? And what is more interesting, the trustee company is liable for the foreclosure proceedings but who is going after the trustee companies to review the legality of these foreclosure packages? You guess it! Yes, No one is..!
Did you know that a loan Re-Write program has the ability to reduce homeowner’s current loan balance down to the current market value at prime + 3%?
Here is an example: You owe $500K on your home but it is only worth $350k. Investors will bulk purchase the note from your current lender and re-write it back to you at $350k, saving you (the homeowner) over $150k!
I hope this helps!
To find out more about our services you may want to visit http://ASNDinc.com/
Yamen Elasadi
yamen@ASNDinc.com
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