According to a recent study by the Center for Responsible Lending (CRL), it has been found that banks and other loan servicers often foreclose even though investors have more to gain from loan modification. The study also found that the lending industry's poor track record on loan modifications cannot be blamed on homeowners who re-default on their loans.
The study, named "Fix or Evict? Loan Modifications Return More Value than Foreclosures", was conducted by running more than 1,500 simulations of the test used by loan services to determine whether to modify or foreclose. Even with re-default rates as high as 79% (much higher than actual re-default rates), the study found that reducing a homeowner's monthly payment by up to 20% through modification is more profitable for investors than foreclosing on the property. Supporting data from the Home Affordable Modification Program (HAMP), a federal anti-foreclosure initiative, shows that four out of five households that received HAMP modifications are still current on their mortgages.
Why do banks choose foreclosure even when loan modification may save investors money? The banks' interests are not aligned with the investors' interests in this sense. When a bank keeps a mortgage in a state of suspended animation, they are able to collect late fees and higher interest rates while keeping the second mortgage in their portfolio. This misalignment of interests may continue to cause problems if banks choose foreclosure as opposed to loan modification.
Jacoby & Jacoby is a Long Island law firm that handles all areas of foreclosure defense,
bankruptcy and other debt relief matters for borrowers throughout the area. To discuss your case and options,
contact a Long Island loan modification attorney at the firm today.