I was just reading an article in the Orange County Register about the shadow foreclosure inventory and it may not be a surprise but in Orange County there is an estimated 13 months of inventory not on the market.
So as everybody wonders why the banks hold on to them, waiting for solutions a thought came to my mind.
Let me know if you agree.....
A mortgage is a product - Correct?
If a bad product is sold to consumers, the manufacturer of the product is held accountable by various consumer protection agencies. Correct?
And if it is a massive problem, those companies are expected to fix the problem, i.e. a Recall. Correct?
So with this in mind, why are mortgage companies not being held accountable to fix the current problem with distressed homes. They created a bad product which has devastated millions of consumers and yet the consumer is paying the price. There is no real fix for the consumer. We here/read time and time again who is benefiting from the problem that they created. Can you say, One West Bank.
Speaking with a client today they have a applied for a loan modification various times and they have been rejected as their income has been substantially impacted. They have reached out to non-profit agencies, wrote letters to Congress and even the President asking for solutions. Yet all they get are no answers. They have suggested solutions, asked for a time commitment in order to improve their financial situation. Yet no answers come. So they wait.... and wait and wait. (yes, of course they are trying to improve their financial status, they are working as many hours as possible, rented out rooms and considered renting out the house, but how can they when each time they talk to some one they are told, call back we have no answers, or they are being qualified on different terms)
In the back of their mind, they have given up and know they are going to have to find a new place to live. A decision has to be made as their home was scheduled to go to auction last month.
Earlier in the week, they called their lender to see if there were any options and told sorry, your home is scheduled to go to auction next month. Whether it will, we won't know until that day comes. So once again they think, we must continue to pack up and find a new home. So off we go to look at rentals.
Yesterday out of the blue, a package is delivered to their door and SURPRISE!!!, it is a modification agreement from Chase. They think, Woo Hoo, our home is saved!
Slow down, it is a 3 month temporary modification. Some may say be thankful, which they are, but realize once again there really is no answers here for them to move forward with. As it notes, at the end of the program we will come up with a new plan that may increase your payments. OK, great and we agree but to what they ask.....
So do they move forward or sit still and pray something will change financially so they can keep their home!
Looking back if the lender had worked with them a year ago, they could have received this monthly modification payment each month and given the consumer enough time to make a decision and improve their situation, i.e.. rent the home out, etc. But how can they when each time they call, ask they get "sorry we have no answers for you call us back in 10 days." 10 days later, 10 days later, 10 days later.
So this new modification does it really give them any hope, is their a solution somewhere in the fine print? I think we all no the answer to that question.
Now we understand why there is 13 months of shadow inventory?
How about coming to the consumer and saying, OK we get it you are in trouble, we agree we created this problem and will meet you half way. ( I know I live in a fantasy world)
First we will modify your loan for ahhh, say a year. We agree to reduce your principle, right off the second by this much.... as we realize we are going to loose 200k now. (not set it aside, write it off, reduce principle)
Your income must increase by this much....
Your debt must decrease by this much.....
We don't care how or if you rent out the home, these are the terms you must meet. If you do then this amount will be your new loan amount.
If you don't agree with these terms, then you have these options, short sale, deed in lieu, and this is the time frame we will give you to complete these task.
YAY, the homeowner is thrilled, why because they can actually make a decision on their life today and move forward vs. feeling like a hostage.