Idea to Help Michigan Homeowners get More Loan Modifications

Less than 2% of eligible homeowners have received a permanent loan modification, despite serious pressure from the Whitehouse.

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

Obviously, lenders are dragging their feet when it comes to approving loan modifications. 

It's gotten so bad, the federal government has taken to publishing a monthly report on lender progress on loan modifications.  Numbers are slowly heading up, but not fast enough.

I was asked by Michigan state Senator John Pappageorge for some ideas on what the state government could do to alleviate the housing crisis for Michigan homeowners.

Below is a copy of the white paper I sent his office in January, 2010.

Is There a Better Course for Home Mortgage Debt Recourse?

To address the worse housing crisis in America since the Great Depression, the Michigan legislature instituted a 90 day foreclosure moratorium, effective July 6, 2009 (PA 29, 30 & 31).

The intent of the legislation was to encourage mortgage lenders to more aggressively offer loan modifications to Michigan homeowners, in line with the federal Home Affordable Modification Program (HAMP).

Although it's too early to evaluate the effectiveness of this piece of legislation, statistics from the federal government show mortgage lenders are not embracing the HAMP program.

Every month, the federal government publishes a report on the Making Home Affordable program. The report details performance statistics on HAMP participating mortgage lenders. The statistics are demoralizing:

- Less than 35% of eligible homeowners have been offered a trial loan modification

- Only 27% of eligible homeowners have been approved for a trial modification

- Just 24% of eligible homeowners are in an active trial modification'

- A dismal 2% of eligible homeowners have been granted a permanent loan modification

Mortgage lenders claim they are doing their best and attempt to shift blame to homeowners not sending in their information. A quick Google search on loan modifications brings up too many instances of complaints against lenders to give any real credibility to these lender claims. In fact, Wells Fargo, to their credit, has a company sponsored blog that lists numerous customer complaints about their poor service on loan modifications: http://blog.wellsfargo.com/wachovia/2009/04/explaining_the_making_home_aff.html.

When a homeowner doesn't get approved for a loan modification they qualify for, the end result is typically foreclosure. Not only is this an emotionally traumatic experience for a homeowner's family, it also doesn't end their potential nightmare.

Michigan currently allows mortgage lenders recourse against homeowners that default on their mortgage debt. To pursue homeowner debt after a foreclosure, a home must be worth less than the debt liens against it and the foreclosing lender must bid fair market value to create a deficiency amount. With close to 50% of financed homes in Michigan being upside down, this is a growing practice by lenders. Michigan statutes currently allow a lender up to 6 years to collect this debt. So, about the time a family believes it has recovered from foreclosure nightmare, they stand a strong chance of having to deal with collection attempts.

If the Michigan legislature was to pass temporary statute to suspend mortgage debt recourse and the resulting deficiency judgments, more encouragement could be brought to bear on mortgage lenders to improve their performance in approving Michigan homeowners for loan modifications. This would go a long way to addressing falling home values in the state and the implications that has for city property tax revenues.

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In addition to real estate lending, consulting and investing, Drew Sygit writes & speaks about the mortgage & real estate industries. He holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor. He's presented, spoken and/or written for HUD, Financial Planning Association, Financial Planners Association of Michigan, Michigan Association of CPA's, Institute of Continuing Legal Education, Oakland Real Estate Investors Association, North Oakland County Board of Realtors and numerous industry publications. For speaking engagements and questions he can be reached at dsygit@TheLendingEdge.com. He also publishes his own blog: http://DrewsMortgageNews.com.