Government proclaims loan modification victory, experts cry foul
October 10, 2009 by admin
The jubilation from the government over the early success of the home loan modification push is not being shared by everyone in the industry. Late last week the government revealed that working with key national lenders and loan service companies, that over five hundred thousand mortgage loans have been modified in an effort to help keep struggling homeowners in their properties. President Obama, announced earlier this year that the Home Affordable Modification Program would target aiding three million homeowners over the next two years to rework their home loans and help stay in their homes.
The real estate industry has been one of the hardest hit areas of the economy over the last two years and one of the key factors in driving the country in the current recession. The rapid deterioration of home values, spurred a major spike in home foreclosures, forcing major lenders to write down their loan portfolios by tens of billions of dollars. The continued decline in home values has been accelerated by home owners losing their properties to foreclosure or simply walking away from their properties, further compounding the problem. The government has attempted to reach out to troubled home owners and help keep them in their homes, first through a program called Hope for Homeowners that was launched in 2007, which can be viewed as a complete bust. The failure of the Hope For Homeowners program has led to increased scrutiny of the governments latest attempt.
For months, home owners have proclaimed difficulties in working with their lenders to modify their home mortgages. Articles on MSNBC and CBSMarketwatch each highlighted the challenge of hundreds of applicants with different lenders who faced similar difficulties in processing their applications and receiving feedback from their servicers regarding their loan modification application. Earlier this summer, the nations top 20 loan service companies were called to Washington to address the challenges and work to improve the process to provide relief to struggling home owners. As the national unemployment rate continues to increase, home owners are continuing to face increased pressure to stay current with their homes further complicating the situation.
The true numbers behind the governments recent report have many experts crying foul. The rapid turnaround of assisting almost 400,000 borrowers in the past sixty days would be great news for the real estate market and housing industry, if only the results were not viewed as temporary. The underlying problem, is that the modification process involves a 90 day temporary window, before the home owners loan modification is supposed to become a permanent solution. The recent report indicated a large gap in transferring the temporary loan modifications to become permanent loan modifications.
The nations largest loan servicers have a financial incentive from the government to help homeowners with conventional loans, underwritten to guidelines originally written by Fannie Mae or Freddie Mac. In the past ninety days, the HUD announced their own program to help assist FHA mortgage loan holders in modifying their mortgage loans. The process of modifying an existing mortgage helps to reduce a struggling homeowners house payment to a level based on their income and debt ratios. Most critics who don’t believe the program will have a meaningful impact in helping to slow down home foreclosures point to the avoidance of addressing the more critical area, the homeowners principle loan balance. The belief is that a more beneficial model to address the home foreclosure crisis would be lowering the principle balance of the troubled mortgages, helping reduce the payments along the way and providing an incentive to keep homeowners in properties that are often tens to hundreds of thousands of dollars underwater.
The true impact in the government’s aid to help homeowners will become more evident if home foreclosures begin to slow down in 2010. The pressure from the lack of job creation could force policy makers back to the drawing board to try and further address this Achilles heal in real estate market.