Psst: Did you get your mortgage reduced?

Worth reading today:

An interesting and timely piece from Voice of San Diego exploring this thorny question: When a homeowner renegotiates a mortgage to a lower amount -- effectively reducing the price he or she is are paying for the house -- should the new loan amount be a matter of public record? Or should work-outs be private?

The article reports that mortgage workouts that reduce the amount of the mortgage can be kept secret -- unlike new purchase loans, or refinance loans that increase the total outstanding debt:

"You would think that should be a requirement because all the other ones are public record," said Fred Eckert, a local title representative with Chicago Title. "If [a lender] records a modification, you have an accurate picture of what's happening with that property. If things weren't recorded, how would you know what's happening on the street?"

... Unless a loan's balance is increasing, the lender isn't required to file a public change. Because the modification is between a lender and a private consumer on an existing loan, the lender is not legally required to attach news of the modification to the property record, experts said. In some cases, even when the balance is decreasing, lenders do attach a notice that the loan has been modified.

The result, though, is that information is kept out of the market, to the potential disadvantage of future buyers, who might base their offer on the last publicly recorded purchase price, when in fact the lender and the buyer know there is newer information: a lower price they have agreed on to keep the house out of foreclosure. More, from Kelly Bennett:

If a prospective buyer could see to what level a handful of homeowners on a certain street had just negotiated their mortgages, that buyer's psychology could be altered and he might offer less for a nearby home than he would have otherwise.

Your thoughts? Comments? E-mail story tips to Peter Viles

-- Peter Viles

Hat tip: Guillermo, via e-mail, from Patrick.net

Comments

[anonymous]

So much for transparency and accountability. Boy, that sure lasted long!

[Nelcisco]

Loan mods is a new niche for me, not too familiar with loss mitigation but I'm learning.

My concern is that as this niche market begins to explode, mortgage brokers that made their fortune on subprime as a way to make money will look at loan modification as a way to make a ton of cash as well, the only danger for them
(which I guess is good thing) is that if they were to act in a wreckless manner the consequences are huge,the feds are not going to put up with predatory loan modifications. A broker that I used to work for is just beginning to do loan mods and seeing that he's already walking a thin line according to a conversation I had with a third party person who understands how it works, so my advise is if you're going do loan mods keep your nose clean & do it right.

[jag]

This is a slap on the face forresponsible homeowners as well as new pontential home buyers. Those folks that bough during the boom who couldn't afford a house are now getting their loans modified and is being kept a secret. shhhh! Talk about rewarding the wrong people!

[MyLessThanPrimeBeef]

If a lender has modified a loan to a lower amount on a house and a buyer applies to the same lender on a similar house on the same block for an amount only the lender knows to be over-priced (becuase it kept the info private), does the lender approve the loan?

[tarbubble]

it should be public. the price paid initially is public, and if the homeowner is going to try to adjust their property tax then again it needs to be public. however, i'm willing to bet that the adjusted prices will not be valid comps - the bank will certainly try to keep the cost of the loan as high as they can, which is why we've seen talk of 3.5% interest rates. it's like reverse usury - huge loan, small interest.

[tew]

Absolutely no doubt it should be public. However, the government wants to do everything possible to prop up home prices. They care not one bit about fraud and justice.

One thing that publicizing these write-downs would do is allow citizen journalists to blog about the lifestyles of those getting write downs.

[SJ]

Hey Deadbeats,

You made a decision to buy a home and should abide by your commitment to paying off your loan. Noboby forced you into buying a home you. Honor your agreement.

[JO]

Proposals to lower mortgage and loan balances for borrowers are shameful. What's even worse is that some high profile economists are supporting this nonsense. If you do this, ALL mortages will have to be reduced. Who stands up for the still sizable number of people who have lived frugally and were responsible and are paying their loans off? All will pay higher taxes and higher loan rates as well as lower saving rates. So as usual, the interventions are designed to punish the prudent and innocent at the expense of the deadbeats who were reckless. The system is broken and can best be described as a gigantic Ponzi scheme. Listening to these same people whose theories and unfounded models got us into this mess in the first place is like buying a larger bat for the kid who broke your window after hitting a baseball. These bailout schemes will likely fail as psychologically, consumers and business' are more risk averse and have decided to paydown/avoid debt, so the amount of new debt is nowhere close enough to the amount being paid down and defaulted on. Time to hire some economic captains from the Austrian school of economics..the only philosophy of true capitalism and freedom.
JO

[E]

Won't make houses any more affordable (or sell) and it will just turn the homedebtor into the perfect example of how you can squeeze blood from a turnip. The poor saps don't even realize that they'd be better off *not* taking that loan mod and just buying the same house for much less in a few years.

Of course...that wouldn't serve the elite bankers very well now would it?

[sheila]

what about McCain's genius plan to buy all the bubble mortgages at FULL FACE VALUE, turn around and offer massive reduced value mortgages to homeowners, and have the taxpayer eat the real, current, cash-out difference? can this guy be any more mercenary in favor of Big Banks (or Big Name Any Industry)?? then, he wants to cut taxes for the uber-rich, so guess who pays for all the bank profits? yep, us.

why oh why does he HATE THE MIDDLE CLASS SO MUCH? is it because he has been on a government payroll his whole life and has no idea what real people have to go through to survive? doesn't he realize that if he wasn't Cindy's stepladder to power, and a sad puppet of the military industrial complex, HE would be middle class, working in a garage somewhere for $12/an hour, based on his performance in college?

this guy must be stopped.

[dudeman1961]

Wouldn't you see a corresponding property tax adjustment for the property?

[iModz Mitigation Services]

$500 loan mod with money back guarantee! I was never a loan officer... I have always worked in loss mitigation. I am here to help! If I can't I'll refund your money--- its that simple.