Loan modifications walk the plank, California homeowners don’t have to follow

Nationally, banks modified 558,000 mortgage loans in the first half of 2011 – a 42% decrease from the 968,000 modifications made in the first half of 2010, says a report by a private-sector trade group of mortgage industry professionals.

A drop in delinquencies also accompanies this staggering nosedive in modifications. Nationally, 2.7 million loans were delinquent for 60 days or more in the first six months of 2011 – 27% down from the 3.7 million delinquent loans in the first six months of 2010. This comes out to about one million fewer delinquent borrowers in 2011 from the previous year.

Sure N Ez:: For the nation, this report affirms a speedy real estate recovery is pure naivety. But this is national. The numbers are even worse for us in California where 2,500,000 negative equity homes (and growing) remain an eyesore on the Golden state landscape.

The huge decline in loan modifications, in addition to a drop off in Notice of Default (NOD) recordings, demonstrates lenders are dilatory and possibly disorganized, a trend we have noted this past year. And as for the drop in delinquencies nationally, assuming those one million fewer delinquent borrowers signal improving conditions in the California real estate market before 2015 or 2016 is wishful thinking. (Sporadic buyer demand for some condominium project or horizontal subdivision does not make a market.)

Though NODs in California continued to decrease in the second quarter of 2011, current serious delinquencies will yield high rates of NODs and trustee’s sales in 2012.

But there’s a simple solution for California’s underwater homeowners: think positive and pull off a strategic default (since lenders are not buckling down to cramdowns). Then, accumulate the monthly payments as savings for a down payment on a replacement home when the lender finally holds the foreclosure sale.

If mortgage lenders will not lend homeowners a hand, then homeowners can force lenders’ hands by exercising their right to default, made imperative by a loan-to-value ratio (LTV) above 125%. Waiting for a modification that isn’t available just isn’t the best bet for a homeowner or for California’s economy. And don’t listen to the preaching on the effect on how a strategic default is better or worse for Fair Isaac Corporation (FICO) credit scores – a short sale delivers the same amount of adverse credit scoring as does a foreclosure.

Brokers and agents have got to get the word out about the rules of ownership they know all so well. Only they can get these imprisoned underwater homeowners relocated into homes free of massive debt. While assisting owners, sellers and buyers, brokers and agents have the duty to explain, to the extent of their knowledge, the rules they have learned about real estate mortgage conditions. One does not acquire knowledge to omit any comment on it or to neglect to impart it. Dear readers, it’s frankly fundamental.