1. Over the past year there has been a big push from the U.S Government and organizations like Hope Now to slow down the amount of foreclosures going on. The goal is to help people stay in their homes and continue making payments to mortgage companies so they don’t go completely broke which most of them are doing.
2. The Detroit News ran an article today talking about how over 50% of the people who had their loans modified this year are again 30 days late on their mortgage payment. John Dugan, head of the Treasury Department’s Office of the Comptroller of the Currency (Really, is such a long title necessary? Sounds like a made up position) said “The results, I confess, were somewhat surprising, and I say that not in a good way.” Why were you surprised John?
3. It does not surprise me at all. When I worked at Quicken Loans I saw a ton of people who should never of been approved on a loan to begin with. It was all of those sub-prime loans they had in the first place which I could not even work with. Many were behind on their payments already or owed over 100% of the value of the home. This was when the market started going down or as I like to say back to what it should have been.
4. The people whose loans are being modified are probably the people who should have NEVER BEEN APPROVED ON A LOAN IN THE FIRST PLACE!!!!
5. The banks are trying to keep the people in those homes paying some sort of payment. Its better to accept half of what the mortgage payment use to be then to foreclose on the home and let it sit vacant for a year because homes are just not selling. It costs the mortgage company more to maintain a foreclosed home then it does to keep the people in there.
6. One of the problems with the way mortgages are done is the mortgage companies only look at what they see on your credit report. I can remember just barely approving people on 30 year mortgages and their debt to income ratio (DTI) was at 57%. That’s right 57% of their income was going to what I saw on the credit report. This was usually the mortgage, car payment, and maybe a credit card. This does not account for car insurance, food, cell phone bills, gym memberships, or any other monthly obligations. You know that if mortgages were to take those into consideration nobody would get approved on any mortgage. You know what, maybe they shouldn’t be.
7. These same people are not changing any of those things they do on a monthly basis because they do not have to. If we really wanted to protect the housing industry the banking community should come together and make people send in receipts of all of their purchases every month to determine what their true DTI is. Unfortunately it will probably be at 90% every month. Before the refi boom happened you had to have a DTI under 38% to get approved.
8. Let’s say that these people are doing their best to make the payments but its all of those what ifs that are happening. Lay offs, less hours at work, car repairs, or maybe the cost of operating the house went up. Electricity rates are going up by 10% in Michigan alone this year. Maybe you live in the city of Detroit and the Water and Sewage Departments plan to raise water rates by 10% and sewer rates by 17% . I can’t believe they are doing that. Their reasoning is because demand went down because of a wet summer. I’m no economist but don’t prices go down when demand goes down. Probably not since its a government thing. They need to protect their jobs so its easy to raise peoples rates instead of being happy that their fellow neighbors didn’t pay as much this past year. With all of these increases in things needed to keep the house livable its no wonder why people are still defaulting on their modified mortgages. Don’t even get me started on the cost of food. The only thing we can be happy about is the sharp decrease in the cost of gas.
9. With all of these outside factors that a mortgage company does not take into consideration when approving somebody on a loan we can probably bet on seeing another article in 6 months about how 75% of modified mortgages are now 3 months late. I think its admirable what the banks are doing but its going to be a lose/lose situation. People need to understand that owning a home is the biggest liability you could ever take on. A home is not an asset until it is paid off. The people who are having their loans modified probably do not deserve to be a home owner. Sometimes its better to rent and know if something goes wrong (leaky roof, furnace, etc.) you can call the landlord and they have to fix it, not you.
10. You know there is no way that the bank is going to forgive a large portion of the debts because it hurts their bottom line. Not even a 4.5% interest rate on the same balance of loan is going to make enough difference to help them out. Expect to see more of the same troubling news in the housing market even with this so called help.