NEWS FLASH: Loan Modifications Work Best When They Actually Lower Monthly Payments
Criminy! We have been hearing a lot about mortgages that go into default or foreclosure, and how the people holding these mortgages should talk with their lenders about renegotiating their loans. As a normal person with more than two (2) neurons flickering on and off in your brain, you probably assume that the goal here is to make the loansmore affordable, which is to say, LOWER IN COST. Apparently banks sometimes disagree.
Observe our exhibits A and B. Exhibit A is a nice lady on a fixed income who was getting some support from her brother, but then her brother couldn't help her anymore and she was having a hard time affording her monthly mortgage payment. So she called up her bank and said, "Sorry, no monies," and the bank lowered her interest rate by 3.3 percent, thus lowering her payments, and she is happy and not homeless and the bank doesn't have to worry about selling off her house at a loss.
Exhibit B is a guy who needs to lower his payments, so he calls his bank, Wells Fargo, and they agree to lower his rate by a princely .4 percent. They charge him enough in fees and penalties that his payment remains exactly the same. Naturally, he has already gone into default again.
Smaller companies like Ocwen that are under more financial pressure and have more experience in dealing with higher-cost loans have been most aggressive in lowering payments, said Mr. Dubitsky, the Credit Suisse analyst. Big banks like Wells Fargo, which would need to be retooled to emphasize modifications over foreclosures, appear to favor modifications that do not lower payments or debts very much.
Well jesus fucking christ, what exactly is the point of a loan modification if it does not lower payments or debt very much? What kind of a moron works at a bank and looks across the desk at somebody who is destitute and nearly homeless and says, "Let's lower your interest rate but make up the difference in fees"?
Also, note that exhibits A and B are both located in South Florida. Thus: move Wells Fargo to South Florida, saw off everything from Fort Myers down, and let this Island of Doom float away forever.
Modifying Mortgages Can Be Tricky [New York Times]