Every week I’m on a conference call with industry insiders where I get updates on lender guidelines that may have changed, lender participation in loan modifications, and updates from any lenders that may be changing their policies and suspending modifications for a certain time period.
This quick update is to give you a snapshot of what is going on right now in the lending community with regard to loan modifications.
Since the new Obama plan was unveiled, many lenders have been sitting on their hands waiting to see what additional guidelines are coming out of the White House.
And since the program is voluntary, no lender wants to agree to something that may set a precedent and put themselves at a disadvantage with other lenders. They’re basically waiting for some guidance or for someone to blink.
Some lenders are continuing to do modifications and I believe those same lenders will be ahead of the curve when the economy turns around.
Keep in mind lenders have their own interests at heart here. One thing we do know is that lenders use a test called “net present value” when making determination for a loan mod.
For you finance folks, you know what net present value is. For the rest of us, what it basically means is that modifying your loan has to be more profitable to the lender than not modifying the loan. It’s a harsh but true reality.
Modifying a loan is strictly a business decision for lenders. Don’t kid yourself that lenders are doing modifications out of the goodness of their hearts or to save the economy.
Nor should they be. I have no problem with lenders making a decision that effects their bottom line positively. Being a business owner myself, I fully understand that with “no margin, there is no mission”.
With that said, what I do have a problem with is the gross incompetence and bad bets the banks made, that came back to bite them which led to this collapse.
When they take taxpayer dollars to save themselves, then for me the rules change, because they’re not on the same playing field as everyone else following free market rules- i.e. you’re on your own, and if you make it great.
If not, your business ceases to exist, because a smarter company served the customer better, and didn’t make reckless bets knowing the gov’t would bail them out if those bets didn’t work out.
Unfortunately they are still looking out for their interests, even after taking billions of taxpayer dollars to prop up the bad loans they made in the first place.
So, the landscape is changing and will continue to change until lenders eventually figure out what to do with all the non-performing assets they hold.
I’m not sure if Geithner will be around much longer. When you hear the words “..I have full confidence in so and so’s ability to perform their job…” coming from the president, that usually means they are about to lose their job.
If that happens, there will be even more delay on the part of some lenders, while a replacement is found that can figure out how to untangle the mess.
A quick example is HomeEq. Approx. a month ago they were doing loan mods. They suddenly stopped due to staffing issues. Unfortunately a day later I got a call from a woman with a HomeEq. mortgage.
It was terrible to tell her we couldn’t help, but I’ll stay in touch and if things change we’ll see what we can do.
Another example is Wachovia. They were doing mods until Wells Fargo took them over. Wells has their own problems to sort out first, so Wachovia stopped doing loan mods.
Multiply this by more than a hundred different lenders, servicers, etc. and you can see it’s a full time job just keeping up with lender guidelines for modification, changing criteria, and who’s doing them and who’s not.
Hopefully next week I’ll have a more clear picture of the govt guidelines that lenders can use to make the determination of doing a modification or not.
Unfortunately with the layers of bureauacracy, not to mention financial industry lobbyists and corrupt politicians jockeying behind the scenes, combined with the AIG bonus scandal, I don’t expect to have any clear answers that we can all count on moving forward.
Each loan modification we take on will be on a case by case basis to determine if we can help. Unfortunately, a recent CNN Money article pointed out that a forclosure now starts every 13 seconds in America.
You would think with a sobering statistic like that, politicians and the lenders would fast track firm guidelines, make policy decisions and clean up this mess as fast as possible.
Until next time, keep your head up. We will eventually get through this mess.
