Lenders Not Anxious To Help Homeowners Avoid Foreclosure

Posted on December 12th, 2007 by saman

Mortgage companies don’t exist to help borrowers escape from bad deals unscathed. Most of them view loans as iron-clad business contracts and are not at all motivated to rewrite the terms or convert loans from sub prime ARMs to conventional fixed-rate loans. Candidly, this does not come as a big surprise. To lenders, business is business!

Yet not so many years back, they were all to eager to write mortgage loans without really determining if the borrowers could afford them. Nor were they overly anxious to spell out the interest reset terms and what would happen to the borrowers’ payments two years down the road. After all, these were boom times, and their was big money to be made. But now, with more than 100 lenders vanished into obscurity and even the big boys feeling the financial pinch, it seems the worm has turned. Or has it?

According to Moody’s, merely 1% of sub prime loan servicers have modified ARMs to aid financially-strapped borrowers. At first glance, it would seem that with everbody from the President, Congress, FHA, consumer groups and advocates screaming to high heaven, it seems the cries are falling mostly on deaf ears. Even the few who are working to help a small percentage of troubled homeowners are doing it rather reluctantly because they view this situation purely from a lenders perspective, not a borrowers.

One large lender recently boasted about the high percentage of mortgages they had modified but lated admiited that they were counting deed-backs in lieu of foreclosure as modified loans. Yeah, right. The homeowners were modified out of their home and onto the steet.

Now let’s look at the real result of the new bail-out solutions. Most experts would be willing to wager that if a moratorium on foreclosures actually happens it will cause an equal or greater moratorium on future lending. Because as we said before, business is business! Who in their right mind is going to lend hundreds of thousands of dollars on a loan that can’t be collateralized?

The biggest lender in the United States, Countrywide, has promised to ‘reach out’ to 82,000 of its borrowers who are having problems making their payments. At the same time, the company admitted that is has about 500,000 borrowers in a sinking boat. Well, that is aid for some 16.4%.

We know that by several estimates, about 2-million US homeowners are still facing foreclosure between now and the end of 2009. Without substantial aid from somewhere, this looks really bad for the economy as a whole. Isn’t it time that lenders started to realize that foreclosing on tens of thousands of homeowners will also deflate the value of the collateral for their good loans? After all, the more empty homes on the market and the lower the overall value, hurts absolutely everyone in the end. Lenders included. It certainly appears to be time to wake up and smell the coffee for the financial folks.