St Louis Mortgage and Real Estate News –
St Louis Loan Reduction and In-House Financing News: Higher Profits From Mortgage Foreclosures Threaten The Use Of HAFA Loan Modification Programs
Customer Financing | St Louis Home Mortgage and Commercial Loans | 314-334-0210 | Floyd Tapia, St Louis Commercial Mortgage and Consumer Finance
The latest news regarding the national bailout effort is that as of April 2010, the U.S. Treasury Department is paying companies that collect mortgage payments and examine pleas for assistance a $1,500 stipend for approving the sale of homes for amounts less than the loan balance. This is known as a short sale.
These same servicers would also get $1,000 for each loan modification completion under the government’s modification program and additional stipends over a period of three years if borrowers stay current on their new mortgage payments.
The problem that most St Louis mortgage experts are concerned with is there’s not enough incentives or time to save the majority of the 4.6 million U.S. homes that have loan payments more than 90 days overdue. This is why more homeowners are turning to St. Louis loan modifications and various other means to raise their credit scores such as customer financing and in-house financing by St. Louis businesses.
The payouts provided by the Obama administration’s bailout programs don’t come close to what servicers will earn by choosing to foreclose instead.
“The incentives being offered by the government are small compared to the counter-incentive of foreclosure,” says Diane Swonk, chief economist of Chicago-based Mesirow Financial.
She goes on to say: “The service industry has its own set of incentives, and you can’t tell people to do what’s not in their financial best interest, especially in an economy that is still struggling.”
Now it seems, according to Swonk, that free enterprise even in a downturn economy such as ours can rightfully advocate greed over doing what is morally right and in the best interest of the homeowner.
However, it would be fair to state that at the end of last year, 48 percent of mortgages modified in the second quarter of 2009 had missed at least one loan payment, according to a March 2010 report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
The statistics go on to show that a total of twenty-four percent of loans modified in that same period were 90 days or more overdue.
Thus, millions of consumers wonder if loan modifications are really working or have we given them a fair amount of time to actually prove themselves doable.
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Either way, here’s the interesting part of this whole scenario. These servicers may not lose money in a re-default after-all, said Marie McDonnell, owner of Truth in Lending Auditing & Recovery Services in Orleans, Massachusetts.
If the homeowner fails to meet the terms of their new loan modification and the property isn’t approved for a short sale under the HAFA program, then servicers can proceed with a foreclosure and recoup all their money when the property is sold.
The truth be told, the majority of servicers prefer loans that are in default since most of them turn into cash cows. So, why are foreclosures more profitable than loan modifications?
Once a loan is 90 days or more overdue, servicers can charge processing and foreclosure fees along with markups for attorneys, appraisers and other associated services.
Keep in mind this does not include any and all monthly late fees that can run as high as 5 percent of the mortgage payment.
For example, on a local level, a St Louis foreclosure on a $200,000 mortgage may result in $10,000 or more of income for servicers who surprisingly get paid before mortgage investors.
Rumors have it that on the average, servicers can easily make 10 times the amount more than any of the government stipends being offered by simply foreclosing on the house.
The sad thing is mortgage investors will take a loss from a foreclosure or a short sale, but not the servicers. As mentioned earlier, they get paid regardless because they are first in line to be paid from the proceeds of the home sale.
The only time companies are enticed to do a modification in the first place is when they want to retain a particular St Louis home loan and the income they earn for administering them as long as they are confident the mortgage will stay current.
In a more shocking turn-of-events, Washington D.C. politicians rejected new legislation several months ago that would have given bankruptcy judges the power to reduce mortgage balances and interest rates.
This ‘cram-down’ provision or what would have been known as ‘judicially modified mortgages’ would have given borrowers better terms and allowed them to avoid foreclosure which is what they wanted in the first place.
In essence, the HAFA bailout program fell victim to congressional greed and red tape sabotage.
By killing this bill, servicers have been given the free reign to legally decide which avenue is more financially advantageous to themselves thus in a capacity to choose which bailout program to offer to the down and out homeowner. Thank you Capitol Hill.
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Tags: bailout program, consumer finance, consumer lending, customer financing, foreclosure, foreclosure stop, HAFA, in house financing, loan modification, mortgage foreclosures, mortgage investors, principal loan reduction, principal reduction, servicers, short sale, st louis foreclosure, st louis home loan, st louis home loan mortgage, st louis home loans, st louis lending, st louis loan audit, st louis loan modification, st louis loan reduction, st louis loan review, st louis mortgage, st louis mortgage lending, st louis mortgage news, st louis mortgage refinancing, st louis principal reductions, st louis real estate, st louis refinancing, st louis refinancing loan, stopping foreclosure
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