The Morning Report
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I had some bits that didn’t fit in last night’s story:
Each bank has a different approval process for loan modifications. One wants homeowners to show they have a certain amount of money left over in their budget each month after they make their current, unmodified mortgage payment. Some homeowners cancel their cable or landlines to close the gap in the meantime.
Like homeowner Adil Zakaria in the story, many homeowners are turning to advocates — some at nonprofits, some paying attorneys or a real estate agent or mortgage broker to negotiate for them. (Homeowners should be wary of anyone who charges them upfront fees for securing a loan modification before providing any service; law enforcement agencies are warning about the potential for scams in this desperate environment.)
Zakaria’s story is the kind the plan seems well-suited for — he was bent on keeping his house. But Christopher Thornberg, principal at Beacon Economics, said the idea that loan modifications will save the market by keeping people in their homes misses the point. Even homeowners with modified loans will be paying back a loan for more than their homes’ worth for at least the next 10 years, he said — leading some to walk away in the future.
“There’s nothing magical about homeownership,” he said. “For most of these folks their credit score will come back before their equity does.”
Thornberg’s concerns come as federal agencies report that no small number of people whose loans have been modified have fallen back into foreclosure. Gabe Del Rio, the vice president for lending and homeownership at Community HousingWorks, said those reports may not refer to modifications that ensure a lowered monthly payment, and without lowering payments, modifications have little hope of sticking.