Loan Modification

Loan Modifications Drop; Foreclosures Rise; and Homeowners Despair

By Andrew

The Treasury’s report on the  MHA for March explained the drop of new loan modifications as a result of banks requiring that borrowers present all relevant documentation before trial loan modifications could start. However, there could be another factor that is causing this drop in loan modifications; the rise in the number of houses banks are repossessing. Figures provided by RealtyTrac show that the number of homes repossessed reached 257,944 during the quarter, which is a 35% increase from the same period in 2009.

The whole purpose of government relief programs like HAMP, is to keep people in their homes and stop foreclosures. These programs temporarily stalled the number of foreclosures but as the government’s efforts tail off foreclosures are expected to continue to increase.  According to research firm First American CoreLogic, 29% of all house sales were distress sales, i.e. foreclosures and short sales. This is not good news for Obama’s revamped MHA program that seeks to specifically target the troubled homeowners that are spiking figures of distressed home sales.

The results of these efforts are not all that encouraging. According to Treasury’s own data the number of homeowners that have secured a permanent loan modification is 230,000. 150,000 troubled homeowners dropped from the program because of failing on payments during the trial period, because they did not provide the necessary documentation, or because the servicers did not feel they qualified after all. The number of borrowers that have benefited from the program has reached 1 million. These borrowers saw their mortgage payments drop to 31% of their monthly income. However, the majority of these trial modifications do not end up in permanent loan modifications. Needless to say these figures do not create consumer confidence in a turbulent housing market where faith in homeownership is dropping, and fast.

Even though most people still feel owning a home is important and preferable to rentals, a survey by Fannie Mae shows that many are skeptical about the chances of prices rising and underwater mortgages gaining any equity. Underwater mortgages are home loans that are worth more than their current market value. For instance if you owe $100,000 on your home but its market value is only $80,000 you are $20,000 in the red, or underwater. Underwater mortgages are much harder to refinance as lenders are not willing to invest in a property that is no longer a suitable security for the loan it is backing. In many cases the only practical ways to deal with these loans is to short sale or foreclose, which explains the rise in distress sales we are witnessing.

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Related posts:

1. Loan Modifications Cannot Stop the Rise in Foreclosures
2. Mortgage Modifications Drop But Mortgage Workouts Rise in HOPE
3. Loan Modifications No Match For Rising US Foreclosures.

1. Loan Modifications Cannot Stop the Rise in Foreclosures
2. Mortgage Modifications Drop But Mortgage Workouts Rise in HOPE
3. Loan Modifications No Match For Rising US Foreclosures.

Full post as published by Blown Mortgage on April 18, 2010 (boomark / email).