Since I live in the Phoenix AZ area, I have lots of friends who have applied for mortgage modifications (a.k.a. loan restructuring). Due to the apparent backlog at the banks, I’ve had an unfortunate ringside seat at the miserable sagas of friends who are desperate to do the right thing and pay off their home loans, but have been put on hold for months.

I’ve heard mortgage lenders are incredibly tough to get on the phone, paperwork is constantly being lost, modifications are approved, then disapproved at the last minute. It’s ugly out there.

I’m not among those who are in need of a mortgage restructure. Curiously, I’ve received dozens of offers in the mail for mortgage refinances. I’ve also been contacted on the phone; the lending representatives are telling me that the process will be “no hassle” and “cost free”, and I can call back “anytime” if I change my mind.

Really? What about all those people who can’t get a rep on the phone and/or haven’t heard back from banks months after the submission of restructuring applications? I thought you banks were all too busy and overwhelmed to act more quickly on mortgage restructuring, which is basically a refinance.

I’m going to throw caution to the wind and speculate the real reason for the delays and stalling on one hand and the active pursuit of new mortgage refinances on the other. May I have a drum roll please: the banks will make money off of refinancing my loan and lose money doing a mortgage restructure.

“Normal” mortgage 30 year refinance rates as of this writing were at 4.5%. Contrast this with most mortgage restructuring deals where the banks will reduce the interest rates to about 2% and may have to reduce the mortgage principal, which is of course, a money loser. Under the Making Homes Affordable program, as an incentive to the banks, any bank doing a loan mod would receive $1500 as a bonus. I guess the major lenders are not impressed with such a mighty sum.

Banks are feeling the heat from the Obama administration and are resorting to exaggerating – or shall we say misreporting – the number of mortgage restructure loans that they’ve completed. Both Citibank and Bank of America were caught making untruthful statements recently in a Huffington Post article. Rather than resorting to the spin cycle, I’d like to see them step up and starting to get these loans through the system. And stop sending me junk mail.

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