Interesting, isn’t it, how the cultural connotations of a word, and the mental images it evokes, evolve over time. The word "modification," for example, is not an inherent member of any given field of study, subject matter or cultural realm. Its dictionary definition simply means "change," (another simple noun/verb that has accumulated vast cultural and political significance and identifying power over the last few years).

Yet, there was once a day when the baby boomer generation heard the word "modification" and visions of electroshock therapy and Jack Nicholson in "One Flew Over the Cuckoo’s Nest" danced in their heads. (Paging Nurse Ratchet.) Behavior modification is that field of psychology devoted to, uh, changing behavior.

While many people associate behavior mod with shocking little lab rats to see how long it takes them to cease and desist, it really refers to any sort of punishment, reward or other choice architecture that steers people toward or away from behavior. Everything from substance abuse rehab, to weight loss programs, to nail-biting cessation and even dog training falls under the behavior modification umbrella.

Fast-forward a few decades, and Jack’s still at it — playing off-kilter types, but to a much lesser degree of tilt, these days. But that same generation of folks who were his "Cuckoo’s Nest" audience — and their children — now hear modification and instantly think: real estate.

I can’t recall a time in the last 18 months when I’ve heard the word modification without its now constant companion: the word "loan."

It’s such a well-worn phrase these days that, in true American style, most homeowners, real estate professionals and real estate fans (they exist) refer to the phenomenon in which a mortgage servicer changes the terms of a home loan by reducing the payment, interest or principal (rare, but it happens) — or even forgives a portion of the balance through a short sale — by shorthand: loan mod, or even workout.

I’m here to tell you, as a real estate broker and psychologist by training, that loan modification and behavior modification may seem like they are irreconcilably different, but in reality, they are more connected than you would ever think. Here’s what I mean.

Every homeowner wants to be on time with house payments. Period. Traditionally, people would go late on their credit-card payments and even scrimp on food costs before missing a mortgage payment.

(I’ve had more than one client thank me for all the weight lost from trimming food budgets after buying a home!) Home equals shelter — the only "financial" asset that is also such a fundamental human need that Maslow saw fit to rank it in his storied hierarchy.

Lately, however, researchers have noticed a trend: More and more homeowners are going late on their mortgage payments while staying on time with their credit-card payments. In a recent study by credit bureau TransUnion, the number of consumers who were behind on their mortgage but not on their credit cards rose from 4.3 percent in the first quarter of 2008 to 6.6 percent in the third quarter of 2009.

In that same time period, the number of consumers who went behind on their credit cards to stay on time with their mortgage dropped from 4.1 percent to 3.6 percent.

There are all sorts of theories as to what drives this phenomenon, which TransUnion calls the "new payment hierarchy." But I have one I’ve seen in the field: loan modification guidelines have modified the on-time mortgage-paying behavior of many a homeowner. …CONTINUED

Almost every homebuyer who has ever rung up their lender’s loss mitigation department to request to be considered for a loan mod has heard the cardinal rule: Despite governmental efforts otherwise, lenders simply do not consider for loan modification homeowners who are paying their mortgage on time.

Test it — call any lender and ask! The customer service gal will tell you.

And I get this — lenders are afraid of the snowball of loan-mod requests they believe would be an inevitable result of granting loan modification or short-sale applications of homeowners who aren’t behind. Further, it’s almost like a mortgage version of the game chicken: Lenders want you to not just state that you are experiencing a hardship; they want you to put your credit where your mouth is.

Really in hardship? Prove it — take the credit hit of going late on your mortgage. Not willing to take that hit? Then, they won’t believe your hardship tale, either. If you can afford to care about your credit enough to avoid falling behind, then you can afford to keep making your unmodified mortgage payment, it seems is the lenders’ collective message.

Unfortunately, though, the constant carrot of a reduced payment, reduced principal or an approved short sale of an underwater property — no matter how illusory — has been enough to modify many homeowners’ behavior, causing lots of folks to go late just to have their workout applications taken seriously.

And even more unfortunately, I have seen this create its own nasty snowball, whereby homeowners who previously planned to grow old in their home end up losing it, once their arrearages grow massive and the lender is still unwilling to bend.

Think of the reward loop that is created when lenders announce they will now start reducing principal — but only for folks that are at least two months behind on their homes. The place where behavior modification meets loan modification ain’t pretty, but it is real.

Methinks it’s time to start reminding those homeowners who continue to pay on time that their behavior has its own rewards, including maintaining strong credit in an environment where high FICO scores are increasingly rare, and the core stability and security of knowing your home is and will continue to be yours, safe from the threat of the foreclosure that happens so often at the bottom of the late-payments-to-get-a-loan-mod slippery slope.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site,


What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription