Tanta on loan workouts

Ah, this is the Tanta I know and love.

A nice, fairly long (but not the usual 2500 words from Tanta) post providing some insight and hypotheses for the reports of lenders / mortgage servicers advising homeowners that loan modifications are only available to those over 90 days delinquent (which is apparently translated by some into “stop paying your mortgage for three months and we’ll reward you with a rate reduction / loan recalculation / amortization increase!”)

In the first half of the post, Tanta touches on the sociological aspects of the complaints surrounding the loan workout system (why do homeowners believe that lenders have created a process where those who elect not to make their mortgage payments are given leniency?  Have we become so jaded with bureaucracies that we believe NOT paying your mortgage is the way to earn concessions from your lender?).  She does so without making accusations.  Instead she provides very reasonable potential expanations.  I hope homeowners and real estate / business journalists pay close attention to Tanta’s insight here.

The second half of the post is mostly concerned with the nuts and bolts of the issue such as the procedural constructions that contribute to the confusion behind loan modifications, and the reasons for their existence (of particular importance are her comments on necessary vs. sufficient requirements for a loan modification / payment plan to be considered).

I can certainly confirm from my time employed at a mortgage lender that there are many who feel they are obligated to receive concessions for a mortgage when they find (or, more appropriately, when they feel) that they can no longer afford it, and who believe not making payments is both a way of getting the lender’s attention, as well as punishing the lender.

I have also have had firsthand experience of what a delinquent account actually represents in human terms, and how grey the line is separating those who can afford to make their mortgage payments, those who elect not to make their mortgage payments, and those who just can’t.

Some construct their entire budgets around their mortgage payment, where they live on whatever is left and so it is always first in line to be paid.  However for some who have mounting debt on, for example, their credit cards, the decision can be very difficult.  If you have elected to stop paying your mortgage so that you could pay off a high-interest credit card bill instead, is that the same thing as electing not to make mortgage payments that you can afford simply to improve your mortgage terms?  I wonder how many people who have come to the conclusion that they cannot continue making all their bill payments start calling each of their creditors to find out which would be the best to default or be late on?  And with the news coverage on the mortgage crisis, and how so much of the phrasing seems to be critical of the lenders and favourable to the home owners (ie. the calls from Senators Schumer and Menendez to “to freeze foreclosures on loans in their portfolios for at least 90 days” at Fannie and Freddie), I wonder how many feel that they are either the offended party and deserve the break on their mortgage, or that the mortgage lenders might offer the least resistance?

As Tanta makes clear, the loan modifications are really meant for those who cannot afford the payments and have a high probability of defaulting in the near future should a compromise not be made.  I have never worked in collections, though have worked closely with the department, but my indirect experience has provided me with ample evidence to agree with Tanta that many homeowners may simply be missing the perspective of the lender, leading to a misinterpretation of the 90 days in arrears “requirement”.

Another great post from Tanta.  I highly recommend at least a cursory reading to get some insight into the sociological phenomena that this latest crisis may be in the process of unearthing.

… and the cow goes moo