Government loan modification program gets mixed reviews
June 21, 2009 by admin
The government’s home loan modification program has many home owners still searching for a refinance solution. The loan modification program, announced earlier this year was designed to help stabilize the housing market and slow down the pace of foreclosed properties hitting the market. An initial report, released in May, indicated about 55,000 home owners have been able to successfully refinance their mortgages under the program. The program was the first collaborative finance program announced by the government that combined the efforts of Fannie Mae, Freddie Mac and loan servicing companies. The mortgage loan modifications were available to home owners who have conventional finance loans, and whose current loan to value ratio was under 105%.
Numerous critics quickly pointed out the flaws in the government modification program. They questioned the ability to impact the hardest hit real estate markets such as California, Arizona and Nevada when the loan to value caps were set at 105% and many home owners in these markets have seen the values of their homes drop by 40-70% in the last twelve months, fueled by hundreds of thousands of foreclosed homes and bank owned properties.
Individual success stories from the governments relief program appear to be as commonplace as the challenges from home owners who have failed in their attempt to refinance or modify their loans. A growing number of home owners are reporting struggles with their servicing organizations, as they deal with banks that are understaffed to handle the volume of inquiries or prioritize their customers based on delinquency level.
The governments move earlier this year to purchase mortgage backed loan securities, set off a refinance bonanza for mortgage lenders. It would be hard to imagine that many of the banks and loan servicers have not diverted resources to handle mortgage refinance applications. Companies such as Wells Fargo and JP Morgan both reported strong earnings from the mortgage divisions in the first quarter of the year. A recent report from Money.Cnn.com highlighted the challenges of individual home owners who are struggling with the bureaucracy of loan servicing companies and the governments program. The market has also been challenged by unscrupulous companies taking advantage of homeowners by posing as loan modification organizations. Home owners who are pursuing loan modifications, would work directly with their loan servicing companies and avoid paying a third party company upfront for the promise of modifying their mortgage loan.
Despite, delinquency rates that are fast approaching ten percent of all home owners and surging unemployment, the ability for a streamlined approach to modifications or broad based refinance for struggling home owners appears far from reality. Fixing the housing market is a top priority of the current government, however there does not appear to be a solution in place that streamlines the process and eliminates the anxiety of providing aid to the people who need help the most in the midst of the worst economic recession the country has faced in the last fifty years.