Mike's Minute...: Why the Calvary isn't going to come

In my post, Don't count on it,
I explained that the announced $16 Billion Countrywide loan modification plan was a bunch of Hooey.

Feedback

I got some feedback. Some good and some not so good. It's the not so good that I would like to address right now.

The overwhelming response (and some from loan officers too) sounded like this:

"Mike, we know it's cheaper for a Lender to modify a loan than to foreclose - of course they want to modify their loans! What the heck are you thinking?"

That's a great question -

Here's what I'm thinking ...

Let's look at the modification terms required by Countrywide to be eligible for a loan modification. Remember this is just to be eligible - it doesn't mean you are approved.

Rules for Modification	What?
1. All Existing loans must be with Countywide	On the surface this seems like a given. The question remains, are they talking about a Note they still hold or are they talking about a loan they still service but have sold the Note to the Secondary Mortgage Market? If they securitized your Note, as they do with most all their notes, NO Modification! See Don't count on it
2. The loan must be for Owner Occupied, Principal Residence and you cannot own any other property.	For many homeowners this is natural. They were a first time buyer using 100% financing. If you do have a rental property... NO Modification!
3. You must have a predatory interest rate or unaffordable loan terms. The interest rate for the current mortgage(s) must be 10% or greater or considered to be predatory, or the home must be in need of substantial repairs.	10% Interest? That's pretty high. If I had to take a guess, most of the loans in question had a 6 to 7 rate with a 2% cap. If the loan adjusts to the max and started at 7, you are still under the 10% threshold. You think some pencil pusher might have run a scenario and determined that 10%? Are you now at 9.99 % ? Sorry, NO Modification!
4. The property to be refinanced must be within a NACA region where the NACA Program is available.	This is the easiest term to comply with. To see if you are in a NACA area click HERE My nearest office is in Oakland, CA
5. The property to be refinanced cannot exceed NACA's maximum purchase price limits set for that region. This includes all requested money for any necessary improvements	Oh, and you thought the whole NACA part was easy. Sorry. The limit for your area can be found HERE. In Contra Costa, my limit is set at a measly $362,790! Alameda? $450,000 Chances are, if you live most anywhere in CA... Sorry, NO Modification!
6. You cannot have had recurring cash out refinances for "other' expenses. Refinancing to a better rate is fine.	Rate and Term? OK Documented Home Repair? OK Sentd a kid to College? OK Debt Consolidation? Not OK Vacation to Maui? Not OK Sorry, NO Modification!
7. You must have had your current mortgage for at least 24 months.	Most loans are not going to reset before 24 months so this is an easy one. Unless of course you are falling behind even before the reset. If so, you are in trouble no matter what.
8. All properties must have all inspections. Home Inspections, Pest Reports, and Septic if applicable.	What happens if they find $2,000 in dry rot? Who's going to pay that? The borrower who can't afford to pay their mortgage as it is? Are these inspections free to the borrower? Home Inspectors can find almost anything they want. Send a CFC Paid Inspector out and I imagine they can find plenty of "issues" enough to disallow the modification.