Loan Modifications: The big promise / the even bigger disappointment

HAMP Loan Modifications are a prime example of promises broken.

When HAMP was created in 2009, it was expected to help up to 4 million homeowners avoid foreclosure within the first several months. It has fallen far short of expectations.

Meanwhile, from 2007 through mid-2016, more than 18 million homes in the U.S. were foreclosed upon.

Lenders servicing loans owned or guaranteed by Fannie Mae or Freddie Mac are required to participate in the HAMP program. However, the program has been plagued by servicer non-compliance and complete lack of enforcement.

The government promises a financial incentive for servicers who assist homeowners with loan modifications. However, the financial incentives that encourage them to pursue foreclosure are often more appealing.

In addition, HAMP only requires modification of loans which meet the net present value test. This test determines whether the modification will or will not save the investor’s money. If they determine that foreclosure is more profitable, the permanent loan modification will not be granted.

But they take their time in making this determination.

As a result, homeowners who hope to save their homes through a loan modification are often strung along for years, submitting and re-submitting documents, then sometimes being granted a trial modification. All too often, months of making trial modification payments result in a final verdict of “no,” and the house is taken in foreclosure.

Sadly, lenders know from the outset which modifications will be turned down. It’s a simple matter of plugging the numbers into a computer program. We have that program in our office and can tell homeowners within minutes whether pursuing a loan modification is worthwhile.

Private loan modifications report higher numbers, with more than 4.5 million loans modified over the same period of time. Called proprietary loan modifications, these are “in-house” plans that can vary greatly from one situation to the next. Some have adjustable terms that can increase payments in the future. Others have profit sharing terms that bring immediate relief and promise repayment to the bank if there’s a profit on an eventual sale.

Principal reductions are not usually the reality.

Statistics show that principal was reduced in only 17.1% of all loan modifications. In 77.2% the interest rate was reduced, while other modifications simply extended the terms of the loan. One woman reported a less than 10% drop in her payment amount – but an extension from 23 years to 40 years left on her loan.

In more than 10% of the modifications, the monthly payment was not reduced. Actual reductions in monthly payments ranged from zero to as much as 35%.


Please note that the information provided on this San Diego short sale page is generic, academic information used for general information purposes and may not be construed as or relied upon as a promise for a specific outcome.

This site provides information about real estate, law, income taxes and credit scores as relates to borrowers in distress, short sales and similar situations. The site is designed to help users safely cope with their own needs. Information is not the same as advice — the application of law or regulations to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer, tax adviser or other specialist if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation. The models in photographs accompanying the testimonials on this website are used for illustrative purposes and are not a personal endorsement.

Should You Keep Making Payments on an Underwater San Diego Home?

Are you among the hundreds of San Diego homeowners who purchased your home at or near the top of the market – and now, even though prices are rising, owe far more than the home could bring in a sale?

Were you led to believe your home would go up in value, and that it would be easy to refinance out of your adjustable rate mortgage before the interest rate reset? Even if you have a fixed rate mortgage, you’re probably frustrated because your house is “underwater” so you can’t refinance into today’s low rates.

Why are you continuing to pay?

If you’re in this situation, you may be asking yourself why you’re continuing to make payments when it could be years before your home is again worth it’s purchase price – or even its mortgage loan balance.

You’d probably like to keep the home – but pay less.

You’d probably love to get a loan modification with a principal reduction and a fair interest rate – so you can make payments on your home based on its value in today’s market. Unfortunately, banks aren’t interested in making principal balance reductions.

We know, there’s some talk of principal reductions in the new news coming out of Washington. At this point, it’s just talk, and it only applies to a handful of borrowers.

Meanwhile, banks resist principal reductions because they have to be written off on the books immediately. That hurts the company’s reported earnings – and reduces the CEO’s ability to get a bonus at the end of the year. It could even threaten his job.

An interest rate reduction (which is temporary) shows a much smaller loss – and thus makes a much smaller impact on the CEO’s bonus.

In addition, experience has shown us that most loan modification attempts fail – sometimes after causing financial devastation for the homeowner. For many, foreclosure is the final result of a loan modification attempt.

Offering your home as a San Diego short sale is a better plan.

First, when you short sell, neither your first nor your second lien holder can come after you for a deficiency judgment. If you let the house go into foreclosure, that second lien holder can demand payment.

Second, a short sale has a smaller impact on your future. Your credit scores aren’t as severely damaged, and you’ll be eligible for a new mortgage loan in as little as 2 to 3 years. After a foreclosure, you’ll wait 5 to 8 years.

Now that second lien holders can’t demand deficiency payments, it takes a strong negotiator to get them to agree to a short sale. There’s no doubt that short sales demand a greater commitment and greater expertise from your REALTOR®, which is why you hear so many stories about the difficulties of closing short sales – and why you need expert assistance.

As San Diego short sale specialists, we have developed methods for approaching the banks so that our clients can sell short, even with second mortgages, and even when they have both assets and income. In fact, we have a 98% success record in closing the short sales we list.

Every short sale situation is different. If you’d like specific answers that relate to your situation, call 619-929-1413 or write td@tomdunlap.com.

We’ll be glad to explain in detail how the San Diego short sale process works, and to answer all of your questions. So contact us today.


Please note that the information provided on this San Diego short sale page is generic, academic information used for general information purposes and may not be construed as or relied upon as a promise for a specific outcome.

This site provides information about real estate, law, income taxes and credit scores as relates to borrowers in distress, short sales and similar situations. The site is designed to help users safely cope with their own needs. Information is not the same as advice — the application of law or regulations to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer, tax adviser or other specialist if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation. The models in photographs accompanying the testimonials on this website are used for illustrative purposes and are not a personal endorsement.