Foreclosure rates on Forbearance Agreements reaches 58%

by Dan Havey on August 23, 2011

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Welcome back to the Velocity of Money this is Michael J Barnes and you are listening to KFNX 1100AM Arizona’s news talk leader

In studio with us today on this fine New year’s eve is Dan Havey, the co founder of the modification hotline as well as the author of “The Foreclosure Sharks” a great white paper he put together

He is also the author of “Real Estate’s Future” and this segment we are talking about loan modifications and some specific information

You also have a great story to tell about this to

Well unfortunately I have too many stories about people who have had to go through foreclosures, bankruptcies, loan modifications

The one story I want to talk about real quick is a friend of mine who unbeknownst to me went out and did a loan modification on her own and not to get into a whole bunch of technical details on it but she ended up getting a pretty decent interest rate because they actually cut her mortgage payment in half and she was pretty happy about that she owned a little bit more than the house was worth she wasn’t terribly upside down but by the time they got done with her she certainly was going to be because the modification, and actually I should not call it a modification I should call it a forbearance agreement, what they did to her was to say, “OK we will cut your interest rate in half, we will cut your monthly payment in half but we will take all of that deferred interest and tack it on to the back end of the loan.” So that by the time her interest rate went back to where it had been which was, it was actually going to adjust up over the next five years so within the five year time period she was actually going to own $60,000 in back interest on top of the principal balance that she had before she went to go talk to her bank

What kind of a deal is that? I did not think it was a very good one and she ended up eventually not taking it and just recently let the house go back to the bank, because she just looked at it and said, “Wait a second here, I am already $20,000 upside down by the time I am done with you guys I will be $80,000 upside down and so great I get a deeper payment.” But she moved into a rental property that was even cheaper then what she would have had to pay to stay in the house and from what she tells me the house is nicer

Some of the unfortunate scenarios that come up that we get to see unfortunately we talk to lots of people that have similar situations, try to do these things on their own and it is possible to do a loan modification on your own

We know that, the program is designed for you to do that

The problem is it generally does not work out

The re-default rate on loan modifications done on your own is significantly higher than loan modifications facilitated by an attorney that is representing you for you for a number of reasons

Number one you have to pay a attorney to represent you

The other is that I think you are going to get a better modification based on real factors not just on a negotiation between you and an expert negotiator and the loss mitigation department for the bank

We are talking abut using a professional attorney who is a trained negotiator to negotiate on your behalf with another attorney by the way, they’re not talking to the same loss mitigation people in India that you may be talking too, correct?

Here are some numbers that just came out from John Dugan who is the Office of the Comptroller of the Currency and they did a study of the loan modifications that have been done to date

In many cases these were forbearance agreements, not loan modifications, if an individual talks to his bank, generally speaking he will not get the same as what an attorney would do, so most of these are really forbearance agreements

And in that case, 36% had defaulted or were 30 days late within past due after 6 months and 58% were in default after 8 months again that is 58% after eight months and I saw some numbers the other day and unfortunately I did not bring them in with me today, that according to some study of the very few unfortunately few of the modifications that have been done using an attorney, I say very few but it is still thousands and tens of thousands compared to what is getting done directly with the bank, the number is only like 5% of the ones done with an attorney have re-defaulted and again I do not have the numbers with me so I can not site the source
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