Anecdotal evidence isn’t great but with the changes going on inside banks, it may be all we have.  And I have heard enough reporting on the news to know that many reporters are just using anecdotal evidence for their stories.

I hear that some loan modifications are happening but they are essentially new loans.  The banks aren’t smart enough or at times able to just say, “Well you can afford $X? Sure, we will take that for now.”  They still want a statement of your income and all of your debts while you go through the same process that you would for a new loan.  I also hear that quite often they don’t work out but that depends on who is talking.  Some banks send people out to homes to sit with the homeowner to work out a modification but I don’t hear that story as much as the ones where it didn’t work.

Many ask why the banks don’t just reset all of their troubled loans and stop the rate adjustments that hit people the hardest?  With a foreclosure the bank loses money and 98% of the time they no longer have an income stream from the home since they don’t control where the new owner will obtain a loan.  If the bank resets the loans they would continue to have a revenue stream and hopefully the homeowner would be able to keep up until the market improved.

The obstacle to that scenario is that the banks don’t hold most of the loans; they only service them.  This is part of the reason that the world economy is in trouble.  These loans were packaged as bundles of good debt, which it wasn’t, and then only serviced by a company.

Countrywide announced last October that they would modify 80,000 loans.  Sounds like a lot, but according to this article that is less than 1% of the loans they service.  They only have servicing rights on the others and any change in the loan would fall back on Countrywide to pay.

The banks do seem to be getting more organized (Article: Short Sales: Banks Getting Organized) but they may have done that to the detriment of loan modifications.  I have been told that loan modification applications are getting extremely backed up while short sales applications are starting to speed up for some banks.  If you can get a loan modification or a forbearance to catch up, that will almost always be the best option.   Maybe they will get these departments running smoother.  In the past I heard that 1 out of 10 short sales succeeded.  Now with the rising foreclosures banks have gotten on the ball and I haven’t heard of one that hasn’t worked out yet.    I am hearing that loan modifications are happening but I do know they aren’t as simple as they should be or common as they could be.

Interesting photo via http://flickr.com/photos/wwworks/

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