Simple Mortgage Modification Arithmetic

by Tom Reale
(Somers Point, NJ)

Why would PNC / National City Mortgage offer only a 14% reduced payment (3 month trial) when I have a 40% reduction in income?

Mortgage Loan Modification Answer:

by Loan Modification Expert - Dan North

PNC has not been around long enough to have a track record on handling loan modifications but National City was not known for helping their borrowers. It seems that some lenders do not consider their borrowers as clients but are actually servicing either their stock holders or investors. Maybe that is why corporations and governments get bad names, they forget who their clients really are.

While the government guidelines for the Home Affordable Modification Program (HAMP) are voluntary, usually it makes financial sense to modify loans.

Generally the lender will decided if it makes financial sense only on the basis of "Is it cheaper to modify the loan or foreclose?"

Sometimes it is up to an investor and the decision may be emotional and not make financial sense at all. Some investors prefer losing 50% or more of the loan value instead of buckling into a borrower and making a loan modification that will work for everyone. Unfortunately too many investors that own loans think that way.

Sometimes lenders will hold a hard line to try and keep their loan values high on paper so they can keep making loans. This is a short term strategy that keeps loan values artificially inflated so they can cover up the millions of dollars that are not secured because mortgages have turned upside down. They will even buy their own properties at the foreclosure auction to artificially keep the value inflated on paper.

That is like you or I writing checks when there is no money in the checking account and using the excuse that it was OK because we never subtracted the checks we wrote from the balance. Except if you or I do that we get arrested. If you are a big institution you get bailed out.

Ok so you are 100% right. It is not fair. But it is the way it is being handled. The real banking crisis has not been exposed yet and may not ever see the light of day.

Back to why 14%, I do not know the specifics of your situation but under HAMP the target monthly payment is 31% of your gross income. If you have a FHA, Freddie Mac or Fannie Mae loan your lender is required to lower your mortgage payment to 31% of your gross income. If your lender does not handle any of these loans they are not required to comply unless they sign on to the Government initiative. No wonder banks are giving the government their money back.

If an investor bought your loan then it is up to the investor and they can arbitrarily set their own terms or refuse to modify the loan at all.

What were you expecting common sense?

As long as we look the other way while politicians and quick buck artists sweep the dirt under the carpet guess who pays the price?

(See the follow up question from Tom at Where To Go From Here With PNC / National City)

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