Mortgage modifications help even people who are paying their mortgage

20 Feb Mortgage modifications help even people who are paying their mortgage

Chip Parker, Jacksonville Bankruptcy Attorney says that the”proposed bankruptcy amendment will even help those who don’t want to file” for bankruptcy. He’s right. Mortgage modifications are good for everyone. Even for those who are paying their mortgage on time. Why? If a homeowner can’t modify his mortgage, foreclosure is the only option. And not everyone can actually qualify for a mortgage modification. A foreclosure in the neighborhood hurts the property values of everyone in the neighborhood. The foreclosed house will be sold at a deep discount. It will set the level of the next sale.

All of the news-channels have been reporting that people are upset that their neighbors might get a break under a mortgage modification while they are struggling to make their payments as agreed. Is this fair? Is this good?

In my neighborhood, all of my neighbors have been paying their mortgage as agreed. Yet all of our property values have gone down by 25% or more. Why? It’s very hard to get a mortgage. It’s extremely hard to sell a house. Foreclosures represent the only sales in the market. So if my neighbor can restructure his mortgage and keep his house, it won’t be foreclosed. If his house is not foreclosed, it will stabilize my neighborhood. It truly is in my interest to “love my neighbor as myself.”

Would mortgage modifications hurt those who are paying? Their taxes will be used to bail out the banks whether they remain private or become nationalized. Banks and other financial institutions are broke. They made bad loans. The bad loans have been made worse by a bad economy. The banks stand to lose money whether loans are modified or go into foreclosure. Banks will need to raise more capital or they will not be able to continue in business.

So when you hear banks complaining about mortgage modifications in bankruptcy, they are basically saying that they are more entitled to economic rescue than their customers. If you believe that, I have a bridge in Brooklyn to sell you.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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