Florida Home Buyers and Investors Blog

Well the reports are in, 650,000 people are in some form of loan modification out of 4 Million homeowners that actually qualify, and only 1700 loands have been modified permanently.

OK, what are the lenders doing with all the money they get for loan modifications.  Remember lenders get $1,000 to "say" that are re-working a loan, then get $1,000 when the homeoner is in a "trial" program, and $1,000 in year 2.

The fact of the matter is these loans will likely default again, thereby starting the process all over again, in an endless circle of stupidity.

Banks have 10x more in reserves no then ever before thanks to TARP, so there is NO insentive for them to do anything.  Before TARP, banks would have to dig into THEIR pocket for reserves when a loan defaulted. 

One bank insider I know who is re-working mortgages, said all we want to do is get non paying owners paying something, then re-finance them into a 5/1 ARM, pay all the closing costs, broker out the re-finance and dump the loan on some other unsuspecting schmuck (investor). 

I fear all we are doing is putting a finger in the dike to stop the bleeding, and in 3 years when life is good and everyone forgot about the bad times, these re-worked loans will default again when rates adjust to 10% after inflation kicks in.  Putting us right back into the mud.

The credit and mortgage crisis is far greater than anyone could have anticipated and will take decades to clear out.  The roller coaster has just begun.

Having said that, I think home prices are close to bottom, although some additional downward pressure will come in 2010, but as homes are foreclosed, there are buyers ready to jump on good deals.

I wish you all a very Happy Holiday Season!