Consumer Law

Mortgage modification: what you can and cannot get

By Sam Glover

The government and the banks say consumers are getting mortgage modifications, while the numbers and consumer advocate say otherwise. Minnesota business lawyer Nathan Brandenburg took a stab at unraveling the confusion which may be part of the reason why consumers are not getting the modifications they want.

He points out two important features of the loan modification options: (1) they are need-based; and (2) they will not reduce the loan principal.

Need-based means that consumers can obtain a mortgage loan modification only if they can prove they cannot afford their current payments. I am guessing the banks take an expansive view of the term “afford,” which counts out a lot of people.

More importantly, only terms of the loan like interest rates, fixed v. adjustable rate, and length of the loan will be modified. For consumers stuck with homes valued at far less than the loan, this is bad news. If the bank cannot make the loan payments affordable without reducing the principal, they may simply proceed with foreclosure, even though everyone would probably come out ahead if the bank simply reduced the principal on the loan.

But hey, I don’t think anyone believes that banks are rational actors in the economy, anymore.

Mortgage Modification Confusion | Skjold Barthel, P.A.

Full post as published by Caveat Emptor on July 01, 2009 (boomark / email).