Quite a few of my Houston area bankruptcy clients are trying to get their mortgage servicers to give them Loan Modifications these days. Many people financed houses in the past few years using the so-called "exploding ARM's" or adjustable rate mortgages whose interest rates can go up and down with an index.

Nationally so far there have only been about 225,000 permanent loan modifications granted, really a drop in the bucket compared to the 3 million to 4 million that President Obama had as a target for 2012. And many of my clients that apply, are inexplicably turned down for a loan modification, to lower their interest rates and give them a fixed rate mortgage loan that they can afford. I think I may have discovered the reason why.

In an article by Kathleen Howley published by Bloomberg on April 21 entitled "Mortgage Servicer Profits May Threaten Obama Housing Programs," it was stated that mortgage servicers can make $10,000 from foreclosing on a home, whereas the government (that is you and me) is paying them $1000 for each successful Making Home Affordable loan modification.

So no wonder the mortgage servicing industry isn't exactly "on fire" with granting loan modifications. They can make TEN TIMES AS MUCH MONEY foreclosing, as doing the right thing, and trying to keep borrowers in their homes. It's a darn shame that the "mortgage modification" bill lost in Congress. That bill would have allowed bankruptcy judges to modify home loans, by reducing the principal balance to the value of the house, lowering and fixing the interest rates, and extending terms.

This would have been the "stick" that may have been enough to encourage mortgage servicers to do more loan modifications. Granted, a lot of people were allowed to buy homes in the past few years, when they probably should not have. But now that millions of people are in the homes, something has to be done. If all these houses are allowed to foreclose, it will hurt all of our property values.

And frankly, many of the mortgage loans were predatory. One case I am litigating now, the Hispanic couple would have qualified for an FHA fixed rate loan, yet their mortgage broker put them in a high-rate ARM, likely because of the much higher commission. They were told that they didn't qualify for a fixed rate loan unless they had "perfect" credit, which at the time just wasn't the case, and they had 20% down.

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
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