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Study Finds That Mortgage Lenders Won't Grant Meaningful Loan Modifications Because They Lose Profit

July 7, 2009

A new study by the Federal Reserve Bank of Boston confirms what our San Bernardino loan modification lawyers have thought all along: Mortgage lenders aren't really trying to grant loan modifications. According to a July 7 article in the Boston Globe, the New England branch of the Federal Reserve Bank concluded that banks avoid granting loan modifications because that means losing money. (The article did not specify how.) That's true even despite President Obama's loan modification program, which provides financial incentives for lenders to grant loan workouts. To stop the foreclosure crisis, the authors said, it would be more effective for the federal government to give payments or loans directly to struggling homeowners.

The study examined 665,410 loans made in the middle of this decade that subsequently became delinquent, and followed 150,000 homeowners for six months after they got help. It found that only 3% of borrowers behind by 60 days or more had loan modifications that actually reduced their monthly payments -- considered a good predictor of whether the loan modification will help. Another 5.5% of borrowers got loan modifications that did not lower their payments. It also found suggestions that loan modifications aren't right for all homeowners. A total of 45% of borrowers who got any kind of help re-defaulted during the study, while 30% of all delinquent borrowers are able to get out of trouble without help. The study also found no difference in the rate of loan modifications between loans sold to investors and loans owned by the issuer, suggesting that securitized loans are not the problem.

Study co-author Paul S. Willen, a senior economist at the Boston Fed, summed up the issue when he told the newspaper "Loan modification is not profitable for lenders. If it were profitable, they would go out and hire staff." This may seem like rather bitter logic to homeowners who have been struggling for weeks or months to reach their lenders, only to meet bureaucratic "delays" and "mistakes." As Chino Hills loan modification lawyers, we believe this is a cruel way to repay the trust of borrowers who genuinely believed they could save their homes by jumping through enough hoops. As Rep. Barney Frank, D-Mass., said in the article, it also prolongs the housing crisis -- which could eventually end up hurting banks that accumulate a catalog of unsold properties through foreclosure.

The Anaheim law firm of Howard Law LLP specializes in helping California homeowners negotiate sustainable, lasting loan modifications. Banks may listen to us, even when they have outright ignored their own clients, simply because we are lawyers -- and when lawyers call, lawsuits can follow. In fact, our Diamond Bar loan modification attorneys can and will use any evidence we find of predatory lending as leverage to get you a favorable loan workout. Because we are attorneys, we are also subject to career-ending legal consequences for violating our clients' trust -- unlike the recent crop of brand-new loan modification companies. Our goal is always to get clients a lowered mortgage payment that can keep them in their homes for the long term.

If you're struggling to get a loan modification and you're fed up with your lender's delays, you should call Howard Law for a free, confidential consultation. You can contact us via email or call toll-free at 1-800-872-5925.