Lenders are continuing with foreclosures for financial reasons

August 11th, 2009 | Tags: Foreclosure Crisis

lenders foreclosure

Despite incentives being offered by the administration these are not comprehensive enough. The lenders are continuing with foreclosure for financial reasons.

Their worry is that borrowers may default again even after having their loan modified. This just delays foreclosure causing costs for the lenders to escalate further. Postponing the inevitable cause the condition of the house to worsen and the market value to further fall. Today the lenders are losing twice more in comparison to the losses suffered two years previously said Laurie Goodman of Amherst Securities.

The case of Edward Partain can be cited as one of the examples. American Home Mortgage Services of Texas is agreeable to modify his mortgage on his house in Tennessee after his business began to suffer reverses and a divorce made the hole in his pocket bigger. After negotiating for months Partain was taken by surprise. The lender would decrease the monthly amount by only $90 per month and not $250 as previously he had been made to understand. He bemoaned, “At $250, I would have had a chance, but after they added in late fees and payments, I couldn’t do it.” He soon began to default and returned to the lender asking for more reasonable term. But he was refused on the ground that it had not been a year since his loan had been modified. The house is now being foreclosed upon.

After The Washington Post contacted American Home Mortgage Services things began to look up for Partain. The lenders said they would consider the federal plans. This has put off foreclosure by three months but Partain is yet to know the details. He is apprehensive about what figures the lenders now pop on him.

The government officials have not yet publicly given the figures of how many they fear will re-default under the programme.

A lesson can be learnt from another programme operated by Federal Deposit Insurance Corporation. The latter took over last year IndyMac after the latter failed. It then started to modify the soured mortgages that had been either held of serviced by IndyMac. The chief economist of FDIC, Richard Brown apprehends that 40% of those who had their loans modified are likely to default again. He however commented that even after taking into account these statistics it is better to go ahead with modification. He added, “The idea that 30% to 40% re-default is a failure to a program is false.”