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Tuesday, April 19, 2011

Civil War Coming from Declined Loan Modifications

I received a call today from a long time friend of mine, who is in the process of having his families home sold due to the on going Great Recession, and was not happy. Why you ask? Because the whole loan modification program is a joke.

So, let me back track a little with my friends situation. About a year ago my friends financial house of cards had collapsed. Because of his income decreasing he was charging excessively to continue to keep his household going and make his mortgage payments, but eventually he had reached his max. Credit cards maxed out and a continuing declining income situation had him and his wife considering bankruptcy. They decided against this option and instead settled on their credit cards. While during this settlement process, they also started looking into getting a loan modification. A year later and a long story short, they were declined for the loan mod. Well, not really, but they might as well have been.

My friend eventually lost his job and was offered a loan modification from Freddie Mac (Chase is the servicer of the loan). You might be thinking well, what's wrong with that? The thing that is wrong with that is, his unemployment is $1,400 a month, but Freddie Mac offered him a payment of $1,600. That's better than nothing, but $200 over his total monthly income. So, of course, they declined the offer.

They then were offered a short sale and began the process of putting the house up for sale. The good news is the house sold quickly. They other good news is they qualified for HAFA. Under HAFA you may qualify to get back $3,000 from the sale of your home for moving expenses. Today they learned they didn't qualify.

To be eligible for HAFA, homeowners must first apply for a loan modification through the Home Affordable Modification Program, or HAMP. Owners who do not qualify for a loan modification or miss payments during the initial loan modification period qualify for HAFA. Hence, Freddie MAc declined to pay the $3,000 for moving expenses. My thinking is they weren't actually denied a modification. They were offered it, but the declined the offer. In reality they probably should have taken the the deal and then defaulted again on the re-structured loan.

My friend went on to say he couldn't believe someone has not gone into a bank and started shooting it up. I am in no way condoning this behavior, but it seems like more people have been killed themselves over losing their home then taking others out with them.

I continue to hear more and more about unsuccessful loan work outs and there seems to be a common denominator and that seems to be Freddie Mac. As I have learned that not all loan mods are created equal and there is definitely a difference when it comes down to Fannie and Freddie Mac, with Fannie being the more easy going parent than Freddie. People may not go around shooting up banks, but I feel if there isn't something done soon to turn this mess around, there will be a revolt on a civil war scale.

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1 comment:

Green Trivial said...

Simple case of switching one scam with another.


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