Posted on: Monday, February 22, 2010

Permanent Loan Mods Soar

By Paul M. J. Suchecki
Tags: Loan Mod, Loan Modification, Obama Homeowner Affordability and Stability Plan, ...
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Between January 2010 and December 2009 permanent loan modifications granted under the Obama Home Affordable Program shot up by 75%, from 66,485 to 116,297. An additional 76,000 borrowers have been offered permanent loan mods where the paperwork still has to be signed and returned.

According to the US Treasury, the program passed a milestone, with more than one million trial three month loan mods granted, up from 902,620 the month before.

Despite the improving picture, the Obama program is still criticized as not reaching its announced goal of aiding up to 9 million distressed borrowers through a combination of refinancing and loan modification. Most lenders are reluctant to go the final step occasionally needed to make payments work for a distressed borrower, reducing principal on a mortgage.

Foreclosures have eased. Although some credit foreclosure prevention programs with the drop, many say that the banks are holding back on foreclosures so as not to depress the market with too many homes at fire sale prices.

There is another little discussed factor at work in the conversion to permanent loan mods. At the height of the mortgage bubble it was possible to get a stated income mortgage, without documenting one’s source of money. For borrowers who fudged the numbers these were called liars’ loans. Until recently, a borrower could get a temporary loan mod without proof. Yet to get a permanent loan mod one has to actually prove not only income but hardship. I have yet to find a survey looking at the number of stated income loans that have been converted to permanent loan mods. I suspect it is lower than the norm, simply because revealing that one lied on an application for a federally backed mortgage put a borrower at risk for more than simply losing a home.

Why? Let’s look at a verbiage in a typical mortgage: “The information provided in this application is true and correct as of the date set forth opposite my signature and that any intentional or negligent misrepresentation of this information contained in this application may result in civil liability, including monetary damages, to any person who may suffer any loss due to reliance upon any misrepresentation that I have made on this application, and/or in criminal penalties including, but not limited to, fine or imprisonment or both under the provisions of Title 18, United States Code, Sec. 1001, et seq.”

Do you remember this language? If you have a mortgage, you essentially agreed to this provision. That can’t be good for a falsifier, especially since federal crimes are investigated by the FBI. For specifics, let’s look at title 18, United States Code, Sec. 1001:

” Whoever…knowingly and willfully-

1. falsifies, conceals, or covers up by any trick, scheme, or device a material fact;
2. makes any materially false, fictitious, or fraudulent statement or representation; or
3. makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry;

shall be fined under this title, imprisoned not more than 5 years.

So if a borrower did overstate income on a liar’s loan, and the lender can both prove it and get a conviction, he would have to pay a fine. At least he would also be able to live rent free for up to five years courtesy of the federal government -  in a local penitentiary.