Sunday, November 23, 2008

The Lifespan of Loan Modifications

Like a Mayfly (or fishfly), loan modifications won’t be around long,
but they may leave a nasty “smell” just like the refinance boom has.

November 23, 2008 -- BLOOMFIELD, MI – If you live near a freshwater lake or river, chances are you’re familiar with mayflies. These small flying insects hatch by the millions in late spring or early summer, swarming over everything, especially light sources. Having no mouth or digestive system, they frantically mate to reproduce before dying, smelling all the while like dead fish. The only good thing about them is their short lifespan – some species live for an hour, most not more than a day.

Loan modifications have a lot in common with these creatures.

This past spring and early summer news coverage of loan modifications swarmed in frequency and the public became very aware of the term and concept. Recently, the activity of loan modifications has also swarmed as lenders have fallen over themselves announcing how many hundreds of thousands of loan modifications they’re targeting to do.

Swarms of bankers, mortgage originators, attorneys and others have been drawn to loan modifications like a mayfly to a streetlight. The opportunity to make a quick buck with loan modifications is eerily similar to the fast money that attracted many to the mortgage refinance boom, just a few years ago.

A lack of regulation and almost nonexistent entry requirements allowed many incompetents and crooks into the mortgage industry. They greedily refinanced homeowners into bad situations, took their money and quickly disappeared - leaving behind the rotten stench of the current foreclosure mess.

The bad news is the growing industry of loan modifications has little, if any, regulation. Many desperate homeowners will be duped out of money they can’t afford to lose by greedy opportunists, way over-promising and delivering nothing.

The good news is that just like a swarm of mayflies, the industry’s days are already numbered. FNMA hastened the end with their announcement to standardize loan mods and offering lenders an $800 incentive to do them. Once the list of qualifying homeowners is worked through and real estate values stabilize, loan mods will be a thing of the past.

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