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Mortgage Bankers Association. A Bunch of Whiny Bitches?

So in the Wall Street Journal the Mortgage Bankers Association answered a op-ed about the need for bankruptcy mortgage modifications with the following response.

In “Loan Modification Can Stop the Foreclosure Crisis” (op-ed, Jan. 30), Rep. John Conyers shortsightedly calls for allowing unelected bankruptcy judges to unilaterally modify mortgage contracts to help keep borrowers out of foreclosure.

Mr. Conyers talks about approaches that don’t work. Statistics show that most bankruptcy plans fail, meaning that two-thirds of the homeowners trying to avail themselves of this relief will have to go through the invasive bankruptcy process and still lose their homes.

If this bill were to be enacted, every borrower going forward would pay more for his mortgage: more fees at closing, a higher interest rate and larger down payments. Lenders will be forced to take these steps in order to mitigate the new risk that a judge will someday modify the mortgage contract. There is a reason why borrowers today pay more for a loan on an investment property or vacation home than they do on their primary residence. It is because judges can modify those loans in bankruptcy proceedings.

Rep. Conyers’s claims to the contrary, lenders’ financial incentives are closely aligned with those of their borrowers in avoiding foreclosure whenever possible. Each and every foreclosure costs a bank, on average, between $30,000 and $50,000. That is why in 2008 lenders and servicers worked with their borrowers to complete 2.3 million loan workouts and modifications in order to help homeowners avoid foreclosure.

We can all agree with Rep. Conyers that the downward spiral of foreclosures and falling real estate values is bad for everyone — homeowners, communities and lenders alike. Nonetheless, allowing judges to modify mortgage contracts will not help settle the mortgage and housing markets. Rather, it will only further destabilize them.

David G. Kittle, CMB
Chairman
Mortgage Bankers Association
Washington

The response from the Mortgage Bankers Association just hit a nerve. It’s the same old argument that the sky will fall if we do the logical and commonsense thing for debtors.

Even bankruptcy judges are asking for the right to modify mortgage loans to allow them to keep people in their homes. See Bankruptcy Judges Should Have the Power to Modify Mortgages

Kittle, not all bankruptcies fail. Chapter 7 bankruptcies always succeed. It’s the Chapter 13 bankruptcies that fail and you want to know why, banks. Banks have spent so much money lobbying for laws that make Chapter 13 bankruptcy an almost guaranteed losing proposition. A Chapter 13 bankruptcy is not designed to allow consumers to have a reasonable, sustainable and affordable repayment plan so they can repay what they can afford over five years. No, a Chapter 13 bankruptcy has become a bastardized legal extraction tool by creditors who want the courts to force the debtor to live on such thin margins that the repayment plan is going to fail 66% of the time. If I’m not right, then why do most plans fail?

And while I’m at it Kittle, the argument that we are all going to pay more for this and that is way overdone. Gee, how much less would we be paying if the bankruptcy code was adjusted to allow people a chance at success in a Chapter 13 bankruptcy? Kittle and the MBA, you are not part of the solution here, you are part of the problem.

The country is filled with millions of people that will lose their homes, not because they had modifications, but because their banks refused to communicate, cooperate, or participate. Whoopee, you did a bunch of modifications last year but that only represents a fraction of people that needed them or asked for them. Asking your bank for help is a frustrating and painful process.

And while I’m on a rant Kittle, if banks are bitching about higher losses due to consumer fairness then that just tells me that creditors are not properly pricing their products for the correct level of risk to begin with. Low costs but higher punishments are not the answer to a reasonable and fair solution. Products priced appropriately based on the correct level of risk are.

If bankruptcies are allowed to be modified, as bankruptcy judges want them to be, the chances are greater that more Chapter 13 bankruptcies would succeed, more money would be repaid to creditors and more people could stay in their homes.

Steve

Mortgage Bankers Association. A Bunch of Whiny Bitches? by

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • http://www.parsalawgroup.com James M. Parsa

    I could not help but nod my head in agreement.

    The tragedy of all this? Who get’s the short end of the stick? The home owners, not the lousy banks or creditors…

    I bet home owners would like to see some practical information that may help them in this maladjusted reality we’re living in…

    As a practicing attorney of 17 years, (not all lawyers are bad guys btw) I just want to say the best defense is a strong offense. Scams and frauds are running rampant in these troubled times and so more than ever, people need to be educated to some degree on the subject at hand. Make sure you ask questions, do your studying and cross-reference ALL information! Sounds like a lot of work right? I bet it is less than losing your home and going through the trauma and suffering that road holds… Trust me, I’ve seen it too many times to count at this point…

    And great post Steve, keep em coming. We need all the help we can get!

    James M. Parsa
    Attorney at Law
    Parsa Law Group

  • beachdude

    A Mortgage Modification is a process whereby a home owner’s mortgage is modified and both the lender and homeowner are bound by the new terms of the new mortgage.

    The most common mortgage modifications are listed below:

    lowering the mortgage interest rate
    reducing the mortgage principal balance
    fixing adjustable interest rates within the mortgage
    increasing the loan term throughout the mortgage
    forgiveness of payment defaults and fees
    or any combination of the above

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