The mayor’s office has put out a press release about a deal reached with Countrywide Financial over loans in the District that are currently in trouble or about to be. It sounds like a good deal for citizens on its face:
By committing to the settlement, the Attorney General has ensured that Countrywide will not initiate or advance foreclosures against District borrowers who may be eligible for a loan modification under the National Home Ownership Retention Program until Countrywide determines whether the borrower is interested in and qualifies for a loan modification.
It’s a nice gesture and a welcome move, though how big a concession it is can be argued. Any loan with a LTV ratio of 75% or above – meaning that the owner owes more than 75% of the currently assessed value of the house – was probably made in the last five years. A majority of these loans were the bad credit loans from happypenguin and other such instant loan companies. When you look at the Zillow chart above you see a value dip of about 9% for D.C. , meaning that grabbing back that property just leaves the bank with something they probably can’t recoup their cash by selling. Agreeing to hold off on foreclosure might be similar to agreeing not to reel in your fishing line while there’s nothing on the hook.
More problematic, though, is the clause “Modifications are also subject to affordability criteria and investor approval.” With so many modern properties having been sliced up into collateralized debt products it’s often hard to unwind who the actual owners are, much less get permission for a modification.