Government Talking Tough On Modifications: Will It Affect Real Estate Investing?

CNN Money recently highlighted that 3 of the nation’s largest banks and mortgage loan servicers are been cracked down on by the government for failing to approve enough loan modifications. So how will this affect real estate investing?

Bank of America, Wells Fargo and J.P. Morgan Chase were at the center of this news story in what has been heralded as the government finally taking positive measures to get tough on helping homeowners. What’s the punishment for these mortgage lending giants? They are going to stop getting paid to modify these loans!

Until now they have been getting $4,500 each for modifying delinquent loans. So will this mean more modifications and less REOs available to real estate investing companies? Will it mean that currently delinquent homeowners can sleep well at night and not have to worry about losing their homes? Probably not too likely in either case.

This is probably more of a case of the government flexing their muscles and trying to look like they are doing something positive than anything else. Then you may wonder why these banks are getting paid what could be seen as nothing more than commissions for modifying the bad loans they made in the first place. Commissions that are being paid from your tax dollars. So the banks gave you a bad loan, threaten to throw you out when you can’t pay it, then you pay them more money out of your pay check in order for them to modify your loan. Great deal right? This doesn’t even take into account that in many cases the modifications ultimately offered contain worse terms than the original loan and have often come with higher monthly payments, leading to repeat defaults a few months later.

Perhaps the government should be embarrassed that only a tiny fraction of those they claimed could be helped actually have been. Though the bottom line is that this new ‘effort’ is probably not going to make much difference for real estate investing at all. You can expect the current wave of foreclosures to continue to flow with many appetizing bargains all over the country and home seller’s ought to continue to pursue short sales in order to avoid the worst of it.

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