The LA Times‘ real estate blog posted this week my story about the potential that loan modifications will be kept private between a borrower and the bank, and the blog’s commenters opened a really interesting discussion.

To remind you, here’s the gist of the story:

When distressed homeowners sell for less than is owed on their mortgages or the bank forecloses on them for missing payments, those distressed sales drag prices down in neighborhoods. But unlike in a short sale or a foreclosure, the new “price” of a house with a loan modification might not be publicly recorded information. If it were, some housing experts say it could serve to depress property values even further. Others say the modified balances won’t matter for figuring out a property’s value.

The new loan balances wouldn’t factor into an appraiser’s estimate for a property’s value, but if they were public, they might help buyers figure out what the value of a neighborhood is when it comes time for them to make an offer.

Here’s a great question from a reader on the blog:

If a lender has modified a loan to a lower amount on a house and a buyer applies to the same lender on a similar house on the same block for an amount only the lender knows to be over-priced (becuase it kept the info private), does the lender approve the loan?

This is the kind of question that comes up in the days where I hear as many references to “uncharted waters” as foreclosure rates and falling prices.


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