Modification falters

"U.S. Effort to Modify Mortgages Falters
By RUTH SIMON Wall St Journal 7/28/09

"The Obama administration in February laid out its foreclosure-prevention plan to much fanfare.

"One issue was that mortgage companies were waiting for final federal guidelines on key issues such as how to determine whether a loan modification is preferable to a foreclosure, said Mary Coffin, head of loan servicing for Wells Fargo Home Mortgage

"Employees at mortgage-servicing companies often tell borrowers they can't be helped if they are current on their loans, said Michael van Zalingen, director of homeownership services for the nonprofit Neighborhood Housing Services of Chicago.

"Other borrowers complained of long waits for help. Suzanne DeNick of New Jersey said J.P. Morgan Chase & Co. told her it would take four to six weeks for her modification request to be assigned to an analyst and another 90 to 120 days before she received a decision. The company also asked her to resend her application, further delaying the process.

"Mortgage companies say that to be considered at risk of imminent default, borrowers must typically have liquid reserves that amount to less than three months of mortgage-related payments and, after figuring in expenses, a few hundred dollars or less left at the end of each month."

On Cove Street, the interest rate is merely dropped. There are no costs to the borrower. No hassling evaluation by the banks--which is expensive for the banks. Banks can focus on lending. The government is not involved. Borrowers on the borderline are in better shape. Borrowers above the border have more free cash.