We’ll just have to agree to disagree on this one. IMHO, a permanent principal reduction is a new sale to the current borrower. The price he’s paying for the house is completely different from what he initially agreed to — and completely different from what’s been publicly recorded.
If you were going to buy in a neighborhood where all the sales this year were for $600K, wouldn’t you want to know if those borrowers were literally willing and able to pay those prices? How would you feel if you paid $600K, then found out that all your neighbors who paid $600K had their balances permanently reduced to $350K? Still think that’s not a material fact? I do.[/quote]
I would totally want to know.
But again 2 problems:
1: Banks reduce in proportion to the market.
A bank will not reduce a balance to 60% of the market value (to take your example).
If every house on the block just sold for $600k, then the distressed borrower could sell his for $600k.
Then there would be no incentive to modify.
There would just be an incentive to foreclose or force a sale (even a short sale).
If every house just sold for $600k two years ago, then modified it to $350k last month (this reduction being based on recent sales), then it is incredibly unlikely that there are current sales at $600k.
If there are such sales then its time to call the UT and the FBI and find out if Brent Wilkes is the buyer.
I had a guy who stated to me the other day that his house was appraised at $700k in 2005 and that is what he would accept for it now.
I advised that he would probably not be selling any time soon. The same principle applies here.
Principal reductions are based on recent comps. So are new sales.
2: Modifications are not public record nor are they part of a public market.
Only the security for the original lending contract is public.
The lending contract itself (and any modifications thereof) are private.
The modification market is not an open or competitive one.
There is only one seller of the money and only one buyer of the money.
If I have a loan with Citi, I can’t shop a mod to Wells.
@CAR:
Dude, between your “fraud” posts and the discussion of how we need to change the nature of private property, talking with you is getting more and more like talking to a member of the Green Party.
This one is shining example.
