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Loan mod for a beach house?

By Jay MacDonald ·
Monday, January 31, 2011
Posted: 10 am ET

Here in the Sunshine State, we like to punctuate life's more absurd moments with the phrase, "Only in Florida!" My recent quest to answer a reader's mortgage question led me to Bill Sanchez, who quite by accident provided me with one of those "Only in Florida" moments.

Sanchez is the vice president of Tampa Bay's Community Development Corporation, a nonprofit that helps low-income families buy and keep their homes. My reader was trying to keep her home under circumstances that were fairly convoluted, the upshot being that she didn't qualify for legal aid to fight her way out of a refi because her husband makes too much money.

It turns out she's not alone. In fact, Sanchez says the CDC frequently fields calls from well-heeled, or at least heeled, homeowners inquiring about the possibility of a loan modification.

"What I've found is that people want to modify their loans, not because they can't afford them but because the value of their homes has gone down. They don't feel like they should be paying for a $150,000 loan for a home that is now worth $90,000," he says. "In our area, there are a lot of people who have second homes, and there's nothing for them, either."

Boy, was I glad I wasn't drinking when he dropped that bomb! A loan mod for a beach house? Go ahead, join me: Only in Florida!

On the planet I live on, if you can't afford a beach house, you sell it. But my chat with Sanchez did reconnect me with the reality that just because home speculation is temporarily napping doesn't mean it's dead.

As my colleague Marcie Geffner recently blogged, banks are predisposed against modifying a nonconforming mortgage, in part because recognizing the loss would have an unfavorable impact on their balance sheet. The very notion that they would consider a loan mod for a borrower who can clearly afford their payments is enough to make milk shoot out your nose. Or my nose anyway.

So what exactly does Sanchez tell these solvent mod-seekers?

"When we make an assessment of a new client coming in and we see that they have affordability, we tell them well, you have affordability; there are really no programs out there that will help. And then we become the bad guys because we can't help. But the people who don't have affordability have to come first."

My chat with Sanchez reminded me that there are actually two housing crises going on in this country: one is the fight for a place to live right now; the other involves portfolio recovery for a place to live in the future, so to speak.

"The fact that your home is worth less is an unfortunate thing, but it's kind of, that's life; that's what happens," says Sanchez. "But you have to have a place to live."

Thanks to Bill Sanchez for putting the foreclosure mess into perspective.

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1 Comment
kenny nichols
January 31, 2011 at 6:46 pm

So if your home when you bought it coast 398,000 and is now worth 182,000 because of bank short sales and forclosure sales but your mortgage is current and at 6%. But you can not refinance at 4.81% that will save you around 500.00 a month second home or not. Is that right.Loan modifacations I have done one 25 years left on my loan and was 24,000 behind. The bank added 24,000 to my loan and gave me a new loan for 40 years.I have not done the math but I think the bank did ok. my decrease in value would not let me refinance either, The first situation is my girlfreinds the sesond is mine.