Yesterday, Citigroup and the democratic party made a statement regarding Loan Modifcations. In a few words they said, “loan modifications are not going anywhere for some time and you better get used to it”. They said this buy creating a plan to allow bankruptcy judges the ability to modify loans.

Citigroup was the first bank to back the plan and the others will more then likely follow. What this essentially does is encourages banks to modify loans prior to a bankruptcy. The last thing a bank wants is for a judge to decide what the proper payment or interest rate should be for a borrower. It comes down to controling the process and it is in the best interest of lenders to have control over the loan modification process.

Do you see this as a sign that the government is backing loan modifications?

.

.

.

There has been a subprime-esque bubble growing in the world of loan modifications. I know of several shops that have moved almost entirely from originating loans to facilitating loan modifications for profit. Many lead providers have also started offering loan mod leads as part of their product quiver. The margins are not as good as a loan, but typically they are easier to do so you can do more loan mods per month than loans. The problem that I see, however, is that this bubble, too, is about to burst.

Loan mods were intended to be a compromise between banks and consumers to keep a loan from defaulting in a market that continues to decrease in value; it is a means of loss mitigation for banks. But there appear to be some cracks emerging in the dam. There was a very interesting article in the NY Times on Dec. 8^th. If you didn’t catch it, you can read it here. In short, most homeowners whose loans were modified during the first part of this year are falling behind on their payments once again. The article states:

Read the full story

While loan modifications seem to be as popular as standing on the corner of Main Street with a “Vote Yes for Prop 8″ sign in my conservative neighborhood, the government is set to announce their own loan modification plan of its own.

According to the AP today,  the gov’t discussing the possibility of using $50 billion of the $700 billion financial industry bailout plan to guarantee about 3 million mortgages. This is the point where you start running around the room hysterically with your hand raised saying “pick me, pick me, pick me” and then your realize that your not sure you can use the excuse of the financial meltdown as your hardship or the fact that this is not going to help everyone who has at least 1 late on their mortgage and possibly not the 500,000+ that are in the foreclosure as we speak, but and a big but for that matter, this is a really good start.

Read the full story