Why is it so hard to modify a mortgage?

June 29, 2009

Peter Goodman‘s infuriating and important report about the impossibility of modifying mortgages raises an interesting question: why is it so hard? There are three possible answers, I think.

The first is that it’s sheer incompetence — the banks, at least at senior levels, have lots of good will, but they just can’t find the staff to get this stuff done.

The second is that it’s greed on the part of the banks — that while they pay lip service to the idea of modifying mortgages, they actually make more money by being recalcitrant and obstructive and unhelpful.

The third explanation is somewhere in the middle: that it was always difficult to modify mortgages, that the massive wave of loan-mod applications has made it harder still, and that banks just move slowly, even if they do have good will.

My gut feeling is that the reality is somewhere between #2 and #3. If loan mods really made sense for the banks, they would be better at it than this, and they wouldn’t make life so unbearably hellish for their borrowers.

Once again, this is an area where a regulator with teeth could and should step in. If banks claim to be working hard to modify mortgages, they should be tested on that claim, and held to account if it proves to be false. If the carrot of getting a reliable stream of future mortgage payments, along with $1,000 from the government, isn’t enough, then add a stick as well. Someone needs to fix the current broken system, and it won’t be the banks themselves.


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