To me, this article by Lenn Harley makes total sense – as our market fluctuates and with it home prices, it really does seem unfair that a homeowner must be in arrears to have the “benefit” of the short sale (A Short Sale is one in which the bank agrees to accept less than what is owed on a home loan).
Let’s say you purchased a new home in 2005 for $350K. In 2008 your job was transferred to another state and you along with it. If the market has adjusted to the point where your home is now worth, say, $300K, then you will be bringing money to the table at your closing. The only way around this is to hope that the bank will accept a Short Sale. But in order to qualify for a Short Sale, you have to be behind on your payments. If you are behind on your payments, the credit penalty is MUCH more severe than if you take the loss on your house. The bank will have the power when you go to purchase your next home to charge you whatever interest rate they want to charge you.
Jut another example of how the burden is on the consumer rather than on the shoulders of the banks (who were the ones that gave out the shady mortgages to begin with). Where is the bailout for the people?
** FROM THE DESK OF THE CZAR OF COMMON SENSE IN GOVERNMENT **
WHY DID NOT THE GOVERNMENT MANDATE MORTGAGE BALANCE REDUCTION FOR BANKS RECEIVING TARP MONEY???
IN THE SPIRIT IF A TRUE BELIEVER IN THE CONSPIRACY THEORY, it all makes sense now.
James Downing’s post this a.m. DARN IT – I got one of “THOSE” calls today… was enough to cause a few little brain synapsis in my head to begin stirring. . . .
One fact that James’ article reinforces is that the banks will do nothing to assist a home owner if their mortgage payments are still current. So, faced with the inability to sell their home because the home owner owes more than the house will sell for, SHORT SALE is the only alternative to foreclosure. **
WHY DO BANKS REQUIRE THAT A HOME OWNER BE IN ARREARS BEFORE SHORT SALE APPROVALS?
“WE DON’T LOOK AT SHORT SALE PACKAGES UNTIL THE HOME OWNER IS BEHIND IN THEIR PAYMENTS.” How many times have we heard that? There is no benefit to a mortgage company to modify a home loan. If a mortgage loan is modified to reduce the principal amount, the credit rating of the mortgagor will not be affected. The mortgagor’s credit rating would not be affected by a reduction of the mortgage note. The only change in the home owner’s credit report would be the balance owed to the mortgagee.
I’ve been advocating for a write-down of the principal balance of home mortgage amounts to appraisal or assessment numbers, but it would take a significant amount of money from the government to cover that loss to the mortgage companies and, if we know anything, we know one thing: The government is not going to do anything that would cause harm to the profitability of the financial institutions that originate or service or hold the millions of home loans.
That the government is dedicated to preserving the profitability of the banks is a given. Why then are the financial institutions and the government determined to force a home owner in trouble to ruin their credit before any relief by the mortgage company will even be considered?? That is the question of the day.
MORTGAGE LOAN MODIFICATION WOULD NOT HARM THE CREDIT RATING OF THE CONSUMER.
However. . . .
ONE 30 -60 DAY LATE MORTGAGE PAYMENT WILL REDUCE A CONSUMER’S CREDIT SCORE FOR YEARS.
Could it be that the new “sub-prime”, “Alt-A” mortgages will be mortgage instruments invented to serve the millions of consumers with a short sale transaction on their credit report??
What is the benefit to the banks to force the home owner to ruin their credit rating? Could it be the higher interest rate that can be charged to home buyers with a previous short sale on their credit report?
What could this new mortgage instrument with higher than market rates be named?
The “SS” loan, for “Short Shrift”.
The “SSS” loan, for “Shafted By Short Sale“
The “SS2” loan, for the “Short Score” loan
The “Stiff” loan, for “Stiffed by Short Sale Score” loan
No matter what happens or doesn’t happen, the consumer loses. As the number of home owners who accrue 1, 2, 3, months late on their credit reports, they are prime suspects for future home loans with higher interest rates.
Of course, they are also prime suspects for credit cards with even higher interest rates.
** A change in the bankruptcy law/code that would permit bankruptcy judges to modify loan principals was a solution proposed. However, it didn’t get through Congress.
“HEY, WHO’S LOOKING OUT FOR US??”