Why the Loan Modification Program Is Not Working

If you are wondering why the Loan Modification Program is not working here is the answer:

1. Underwriting: using underwriting guidelines that are obsolete, e.g.

When calculating COMMISSION income you should not use the same method that was used before the economic collapse (taking the two-year average, or the year to date average). In this type of economy you should use the average of the last 3 months and allow for another 10% decline in commission income from that, until we are certain the economy is improving.

When modifying a loan, many do not qualify because when their income is calculated on a year to date income, their debt to income will look lower than it actually is. Even though their commission income is decreased the average income will show higher than the actual current income. This is how:

If you were making $3,000 salary plus $4,000 commission per month the first 3 months of the year your pay-stub would show $21,000 which is the equivalent of an average income of $7000 per month. But, in April if the company lost clients due to the economic conditions, and your commission has now dropped to $2500 instead of the $4000 you were used to earn, your pay-stub at the end of June (6 months) will show 6 x $3,000 + 3 x$4,000 + 3 x $2,500= $37,500 for the six months, which makes it $37,500 / 6 = $6,250 average monthly when in reality your actual income now is $3,000 + $2,500= $5,500

Those lost clientele will not come back when the economy is in bad shape, things will get better only if the economy gets better.

How does this effect a loan modification?

For the Government to approve a loan modification your housing to income ratio has to be over 31%. Housing ratio is the total of your monthly mortgage payment(s) plus your property tax, plus home insurance, plus home owners association (if any), plus Mello Roos (if any) over your monthly income.

e.g.

Mortgage payment $1,670.00

Property tax $165.00

Home insurance $45.00

Mello Roos $55.00

Total $1,935.00

If we take this housing and divide by the old way of calculating income $1,935/$6,250= 30.96% your housing ratio will be 30.96% which is less than the required 31%. This means you can't qualify for the Loan Modification. But we know your income is not the same as it was 3 months ago, now it is $5,500 instead of $6,250. In this case, if they use your actual current income the result would be: $1,935/$5,500= 35.20% which is higher than the 31% required for qualifying for the loan. So your loan should be modified and your mortgage payment has to come down to $1,450 from 1,670$ per month.

2. Attitude of Employees: Although there are a few employees who treat the borrower with respect and understanding, many of these lender employees have no clue that their job is to help these borrowers and that by helping these borrowers they are actually helping their banks, their employers. They treat these borrowers with an attitude, forgetting that many of those borrowers were and are much smarter, educated and more successful in some instances than they will ever be, it is just that they became victims of circumstances beyond their control, circumstances in most cases created by the very financial institutions they are working for. Most of these employees have no clue or are lost in the number of programs there are and have no idea of how to match the borrower with the right program.

3. No Common Sense: In many instances, most banks and their employees have lost their ability of identifying a make sense loan and the potential of loss of everything both for borrower and themselves. For example: a borrower who has been an excellent client of the bank and has a proven history of making his payments on time for years in the past, but has fallen victim to the current economic conditions and has had a reduction in his income; if he is willing to keep the home, and make a payment, as much as he can, per month to avoid foreclosure or a short sale; It is the banks best interest that it facilitates the situation and allows the borrower to remain in that house. The alternative is for the house to be sold in a dead market at a much lower price that does not even cover the balance of the loan.

In these situations, everyone is a loser. The home owner for losing his home, the bank for

collecting less than it is owed, the neighborhood because of flooding the market with more

available properties for sale for the limited amount of buyers, causing even further

deterioration of the home values.

4. Government: I don't think I even need to tell you about the government. Our government officials are worried more about their chairs than the country, have become more hateful than constructive, more partisan than negotiators, more complainers than creators, more dependents than providers. Our competition is winning not because they are better; they are winning because they are using what they have learned from us: educating their people, building their infrastructure, caring for the weak, rewarding success, running a country; things we have forgotten.

5. Know-it-all Leaders: Our leaders, regardless of what they say about listening to their constituents, feeling their (constituents) pain, understanding their situation, open to their suggestions, they all seem to be know-it-all persons. When our leaders start listening to the guy in the street who is really hurting, who knows what's causing his pain, who knows what would help him, then we'll have the real solutions that work because they are coming from the real source and not from some emotionless, heartless statistic that could be translated according to your party's ideological benefits.

6. Time: The time it takes for a bank to process a loan modification is so long that sometimes the frustration kills the applicant, it makes you feel like a football being tossed from this department to the other to another, repeating the same information to one person to another and another as if your information keeps changing while holding for the other person. Some people would rather give up than continue with the process. It is a shame.

The situation is very serious. I am an optimist by nature but with the ways things are now with this government, congress and upcoming elections, things are looking pretty bleak. Whether you are making your payments on time or not you are losing, if not your house you are losing its value.