Loan Modification

Loan Modifications Are Not Working, We Need A Plan B

By Andrew

That is what John Taylor, chief executive of the National Community Reinvestment Coalition feels anyway. Mr Taylor?s organization represents local organizations that are working towards affordable housing and community development. John Talyor like most Americans, including the millions facing foreclosure, and the 700,000+ that are on a loan modification trial and have not been granted a permanent loan modification, is not happy with the performance of the government?s loan modification program HAMP.

Of course he has another idea, a plan B as he calls it. He wants the U.S Treasury to buy out troubled mortgages for a discount value and then soften the payment terms for borrowers by even reducing the principal balance of the mortgage to something closer to the current value of the home. After the mortgages are modified into a more sustainable form the government could then sell them to investors.

The good news is that according to Mr. Taylor this could be done with a few hundred million dollars and should be even profitable to the government. This is a far cry from the hundreds of millions that are being thrown at the current loan modification program with very unsatisfactory results.

Interestingly, some private firms, like PennyMac Mortgage Investment Trust, are already doing this, and you know they aren?t doing for the love of neighbor. Taylor says that the Government should get into this business especially since it is because the government is propping the whole mortgage market that companies like PennyMac can even operate.

The downside of this proposal is that Government will probably not be that good at assessing the value of homes and modifying the home values. Another issue is the awkwardness when the government has to foreclose and evict homeowners that can?t pay their mortgage payments even after the loan modification.

Taylor suggests that the Government could cope with these challenges by terminating bad mortgages in relatively more gracious ways by allowing for short sales, where the lender agrees to sell the home for less than the loan balance.

Obviously Taylor?s plan B has its issues and there are no guarantees it will work. However, the Obama Administration needs to look for alternatives to the current HAMP program.

December?s loan modification figures were somewhat encouraging, permanent loan modifications doubling up to 66,465, but still inadequate figures for the wave of foreclosures the mortgage market is facing. The Administration needs to look at a Plan B if it is to provide significant help to the troubled borrowers that need it.

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2. Loan Modifications Back To Basics
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1. Loan Modifications Cannot Stop the Rise in Foreclosures
2. Loan Modifications Back To Basics
3. Wachovia Loan Modifications Help Only 3% and May Damage Your Credit Rating

Full post as published by Blown Mortgage on January 20, 2010 (boomark / email).