Loan Modifications California Advertisements Are Misleading

We all watched the economy and real estate prices fall in 2007, and how it lead to the boom in loan modifications (California).  Rapid price drops occurred because payments increased on a countless number of variable rate mortgages, causing them to become unaffordable for the homeowners.  Mortgage funds were drying-up in response to world economic issues caused by the real estate bubble and foreign trade deficits.

Loan modifications in California became an overnight sensation.  Attorneys and other real estate professionals began advertising (and exaggerating) about all of the instant benefits of this obscure program.  The advertisements didn’t tell us that the potential benefits were only partially true, and that your results may differ. As a result, the problems homeowners were facing merely got delayed, and sometimes got worse. 

According to the advertisements, late fees, back-interest, and penalties would be waived.  The principal balance and interest rates would be reduced.  Loan modification California was being advertised as "the" solution in cases where the mortgage balance exceed the property value; while theoretically possible, this is a rare occurrence at best.  Banks have have not signalled any willingness to so easily accept these losses from reduced principal balances.

After more than two years of negotiating with lenders, the performance of nearly all loan modification companies has been dismal compared to the expectations that were created by the advertisements.  Most homeowners found themselves in a losing battle with their lenders.  

According to a study conducted by a reputable legal publication, for the "lucky" few actually receiving loan modifications, the monthly payments increased 34% of the time, and more than half of homeowners re-defaulted within nine months. The banks were adding late fees, interest, and penalties onto the principal balance and amortizing the payments over 40 years. 

In addition, the amount of fees that were being added were excessive in many cases.  Earlier this month, the Federal Trade Commission ordered Bank of America to pay a settlement of $108 million because two of its loan servicing companies were caught charging excessive fees that could not be substantiated.

Banks are continuing to show their greed (and short-sightedness), and no apparent morality :

• It has been clearly documented that banks created the real estate crisis (it was not the homeowners) by offering the cheap loans with low rates and easy qualifying.  These readily available funds caused real estate prices to grow as rapidly as they did.

• The banks accepted federal bailout funds, but have not approved many loan modifications.  Most were denied based on various technicalities.  Roughly 90% of the total applications are unresolved and will need some solution for their financing issues. 

• Many believe that banks were disingenuous because they granted "temporary" modifications under the condition that homeowners resume the monthly payments.  "Temporary" modifications were even granted to homeowners that could clearly not afford the properties. With the very low approval rates, it appears that their true intent was to deny permanent loan modification while collecting the monthly payments from the homeowners in California and other distressed states.

• Banks show no remorse for charging their excessive fees from the people who could least afford it.

• Homeowners are steadily losing their homes, but because they are making payments they cannot afford, and their saving are being depleting.  The only logical conclusion is that these homeowners will be facing a bankruptcy in addition to a foreclosure!

Where are the real benefits of loan modification California? 

Recommendation - Reassess Your Options

My recommendation is that homeowners should reassess their options and identify the best potential alternatives for their individual situations. Perhaps the loan modification can still be pursued, or perhaps a short sale or other remedy should be considered if you find you cannot afford the property. 



Comments

[Michael]

It is amazing that so many loan modifications result in higher payments. What are the banks thinking?