If you agree that “sold” comps are meaningful to current/future buyers, then it’s only reasonable that principal reductions be recorded and used as comps as well.
Why? Because loan mods with principal reductions are de facto sales to the current “owner” **at a new price,** and should be used as current comps.[/quote]
No.
There are 2 problems with your argument:
1:Modifications are not de facto sales.
What a borrower or a bank is willing to agree to as a temporary (or even permanent) stopgap measure is really pretty different than what a buyer would be willing to pay to purchase.
If I am 100k upside down, I will likely be willing to modify my principal to make me less upside down (say 30k).
However, I would never agree to buy something for 30k over market.
2:Modifications can’t currently be used as market information.
A mod is a change to a private contract.
This is not the same as an observable public sale.
There is no common database and the mods are not kept on any public or widely accessible private record system.
So to reiterate, they aren’t what you say they are and even if they were, you can’t use them in any reliable way.[/quote]
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.
