-- Are homeowners purposely falling behind on their mortgage payments to qualify for cheaper home loans?
Economists, lenders and other housing experts are concerned that programs to bail out troubled homeowners might have an unintended consequence: encouraging people to miss mortgage payments so they can qualify for a handful of programs that ease loan terms.
"It's a problem," says Mark Zandi, chief economist and co-founder of Moody's Economy.com. "A lot of the programs require you to be at some stage of delinquency, so homeowners say, 'What about me?' and they get delinquent in order to get help."
Many mortgage modification programs require that borrowers be 60 to 90 days late on payments to get a mortgage reworked.
There are no statistics or surveys that track how many homeowners might deliberately be putting off mortgage payments, but dozens of economists and other lending experts say it's a risk. Lenders trying to prevent such abuses are carefully reviewing homeowners' financial pictures to determine that they really need a loan modification to avoid foreclosure.
Lenders scrutinize 401(k)s, IRAs, asset statements, savings and checking accounts, pay stubs and two years of W2 tax forms. If they decide a homeowner can afford a mortgage, a modification will be denied.
Trying to game the system is a risky move for homeowners. Brian Bethune, an economist at IHS Global Insight, says people often don't realize how devastating a delinquency is on their credit record, making it impossible for them to refinance later. And those who fall behind on their payments may not necessarily qualify for modification programs — and end up losing their homes.
"We speak with homeowners every day that have few qualms about walking away from their mortgage or missing payments as a way to 'get in on' loan modifications and low house prices," says Jeremy Brandt, CEO of 1-800-CashOffer, which buys homes. "The attitude is starting to move toward, 'How can the government help me,' " says Chad Olivier, a certified financial planner in Baton Rouge. "We are seeing it on Wall Street, and now we are seeing it with the public."
It's frustrating for Cara Halstead Cea, 38, of Suffern, N.Y., who last year refinanced into a 30-year, fixed-rate mortgage at an interest rate of 7.5%.
She says she's struggling to make her mortgage payments while others who fall behind get assistance. "I have felt that my husband and I are being punished, in a way, because we put the mortgage first, and we are always on time with payments; therefore, we're not eligible for loan modification. … We would do much better with a lower rate."