You hear it on the radio, see it on TV and read it in the paper — “Loan Modification.” If you’re not sure what it means: lenders in record numbers are re-writing loans for persons who are at risk of losing their homes in foreclosure. The Federal Government has implemented several programs, including a $75 million plan aimed at encouraging lenders to re-write millions of mortgages to slow the foreclosure crisis. The plan seeks to help 9 million Americans retain their homes.
The State of California too, has passed legislation aimed at encouraging lenders to implement modification programs. The state legislation adds 90 days to the foreclosure timeline, unless the lender has received an exemption from the State based upon its having implemented a meaningful modification program. With encouragement from State and Federal governments, one would believe loan modification has to be the solution to the foreclosure crisis. The numbers; however, do not bear that out. A new report from the Office of Thrift Supervision reveals that loan modifications may not offer the answer homeowners need.
Thrift Supervision, jointly with the Comptroller of the Currency, recently released a report analyzing more than 35 million loans worth more than $6 trillion, which represents the most comprehensive loan modification study to date. It found that less than half of the borrowers’ payments were reduced by even 10%. One in four modifications actually result in an increased monthly payment due to capitalization of past due amounts. Nine months after modification, 26% of loans, even with a payment reduction of 10% or more, were in foreclosure again. The report found that only a healthy reduction in the payment slightly reduced the risk of re-default.
In addition to the lack of uniformity in modifications, the banks have been inundated with loan modification requests, and are unable to keep up with the pace of applications. It is not uncommon to have two and three requests from a lender for the same documentation, and modification requests can take months to process. Further, lenders have elected to continue to pursue their foreclosure remedy even with a loan modification application on file. The result is that many homeowners are being caught off-guard by unscrupulous companies; promising everything is fine while their home actually inches closer to foreclosure. Many states have now launched criminal investigations into these companies’ activities.
If you find yourself facing financial uncertainty, you need an honest, realistic assessment of your problem and real answers. The Gibbs Law Firm, APC is committed to helping individuals and businesses during these difficult times. Please call us at (949) 492-3350 to schedule an appointment.
David L. Gibbs is an attorney with The Gibbs Law firm, APC. The firm’s practice focuses on issues related to Bankruptcy, Business Law and Manufactured Housing; including community subdivision, pre-purchase diligence and analysis as well as advising community owners on operational, financial and enforcement issues. The firm also represents manufactured home dealers in a wide range of issues. David L. Gibbs is admitted to the Federal Courts for the Central and Southern District of California, and also holds a California real estate broker’s license. The firm continues to offer a wide range of real estate and business related services as it has done for 34 years from its offices in San Clemente. Mr. Gibbs can be reached at (949) 492-3350.