My mortgage companies are Wells Fargo and Bank of America. I have had Wells Fargo loans for the past ten years and Bank of America just bought Country Wide. In this economic crisis my banks should have something better to do than to call me or send me letters offering to modify my loan.
I did want to modify my first position loan to get a lower rate and found my loan had a fifteen year balloon payment. When I talked with my lender he said that was correct because I usually refinance or sell within fifteen years. He was right, I forgot, but times have changed. Now I need an exit strategy.
If I could modify I would need to qualify for a new loan. The loan modification, as near as I can tell, would still cost me about 1%. They have a whole lot of conversation around the fees but it adds up to about 1%. So a new loan for about 1% seems kind of like business as usual for banks.
Even though I could, in theory save 2% in interest I have heard that the really good rates take an exceptional set of qualifications.
Let me also outline some of the programs for people who are behind on their mortgages. So you can’t make your regular payment but they will let you get “caught up” on your loan by adding 1/6th of your payment amount per month and get caught up in six months. What a deal. Or you could add an extra payment to the end of your loan, but you have to provide all your financial information, or declare Chapter 13 bankruptcy. Either way it is a little short of an act of the Almighty.
All in all the programs you read about are refinances. The new trick is to have the property appraise for the 80% loan to value ratios. With property prices declining that gets harder to do. In order to get the good rates you need good equity. Most people with good equity don’t need a loan modification.
What I think is a solution to the entire mortgage mess is to make all loans 6% or less, thirty year fixed, and fully assumable. In that way we would have performing loans from any one who wants to make the payments. It would be a choice if, as you go forward, you wanted to take advantage of the program and have six months to implement it, or do it in stages over a year or two.
It could stabilize the market of today. Of course there are problems. There will be fraud and default, but we have that now.
By making loans assumable like they were years ago you would also have to safe guard the transfer of the loan. That’s what was missing before. A regular escrow could cure this with fees for title transfer, escrow, escrow accounts, and lender notification. A sub agency could be set up in Brokerages that for a fee of say $1000 they could facilitate the trasfer with escrow. I can see online search sites with menu services fitting this business model.
The second half of that would also be concerning debt with banks. All consumer credit should be capped at 14% to 16%. Now that the second position loan market is pretty much dead the bank added incentive to get a consolidation loan should go also. By capping fees and interest on consumer credit more money could be applied to mortgage principles or debt payments in general.
If banks want money this is how they can get it. If investors want returns on investment this will generate more cash payments. Banks can do this themselves and if they are smart they will. Otherwise i don’t see a reason to play the credit game at all.
