Why Don’t Loan Modification Programs Work?

Westcoe Realtors, Riverside, California…We had one of our readers email us this week with that exact question.  Of course, it was preceded by yet another personal, horrendous story of this persons attempt to modify their existing loan.  You know the drill…months of promises, no return phone calls, false starts and hoop jumping, only to be told after months of hope that there would be no loan modification available in this case.  Shock, eh?

So…why don’t more loan modification programs work?

Well, how about an analogy any married person can understand. Ladies…imagine your husband stands up at his work and invites 150 of his co-workers over for dinner.  Hey, everybody is happy.  Free food.  So after work, they all pile into their cars and head to your house…and as this throng of people begin to arrive, you delicately pull your husband over to the side, and through very clenched teeth, inform him that it might have been nice if he had discussed this with you first…and assuming you haven’t killed him at that point, you do the best you can knowing dinner for 150 will never happen.

If you can picture that scenario, then you can begin to understand why loan modifications will never work for the masses.  Oh sure, a few will get “fed”, but most of the people in our above dinner example will go hungry.

In essence, the government (read this as the President, Treasure Secretary, Fed Chairman, etc.) has stood up and told many people they can modify their loans, but they failed to get the support of the very lenders who have to do the modifying…THE LENDERS.  Nobody asked them about loan modifications.  I am not in the habit of defending lenders very often (if you read this blog much you already know that), but on this one, they have absolutely every right to be irritated at the government making promises that the lenders cannot keep.  Why can’t the lenders keep the governments loan modification promises?

 HAVE YOU EVER SEEN THE RULES, REGULATIONS, AND CRITERIA THAT GO WITH A GOVERNMENT LOAN MODIFICATION PROGRAM?  It is a massive joke, except that no one is laughing.  Only the government (federal or state, take your pick) could add so much garbage to a simple plan that in the end, it couldn’t be performed by a financial Harry Houdini.  Any one with any lending or real estate background knows in a 5 minute scan of the latest loan modification program documents that this will never work.  But…the politicians keep talking, desperate homeowners keep listening, and the end we get an email from a massively frustrated homeowner who cannot understand how this could happen.

So…what to do?  Honestly, we don’t know.  We suppose you could keep trying, and perhaps you will be one of the limited few who actually get “fed” from these programs…just stay patient, and realize that you are not crazy…just the world around you.  Good luck.  Wish we had more positive info for you.

Thanks, and call or email us with any questions or issues you would like to see discussed here.