Counterproductive accounting rules
Comment: good read by the CEO of INGDirect!
Why Mortgage Modification Isn't Working - The loan adjustment success rate is just 1%
Excerpt:
That's a success rate of just 1%. This means that up to 99% of eligible homeowners struggling with their mortgage payments have been unable thus far to modify their loans.
A big reason for HAMP's limited success is that the government is suffocating banks with counterproductive accounting rules. Under current law, if a bank modifies a mortgage it must record the write-down as an expense on its books. For example, if a homeowner's monthly mortgage payment is reduced by $400 per month for 24 months, the bank has to report that it "lost" $9,600 ($400 times 24 months).
The bank, though, didn't lose any money—it's still scheduled to receive the totality of the loan principal, just less interest.
This rule, for obvious reasons, makes banks reluctant to modify. They don't want to take the "loss," which can get very big for larger mortgages with long modified periods. So there's a huge financial disincentive to offer modification.
Comment: By the way, INGdirect has a great banking product. We use them for savings and for CD's.
ING is a great bank. You actually just reminded me to grab another CD. I am putting money I save for a car into them. Probably should do that for a future mortgage also.
ReplyDeleteOur plan (have not arrived yet) is to have $ 25K in emergency funds in ING Direct. And then whenever we are $ 1000 over that amount to open a 1 year Ing CD for $ 1000.
ReplyDeleteGonna take some time to get there