Last Friday Treasury revealed the latest data on HAMP, the Administration’s major foreclosure prevention program. The data has been sold as evidence of the significant progress made from pressuring mortgage servicers. Are loan modifications finally becoming the solution for the mortgage crisis as the Government has always claimed?
Let’s have a look at the figures.
Around 900,000 homeowners have entered the program with a trial loan modification. 66,465 homeowners have received permanent modifications as of December 31st. That’s where the good news lies, November’s figures for permanent loan modifications were half that, at 31,382. This progress is being reported by Treasury as a “significant acceleration of the rate at which borrowers are being approved”. Hard to argue with that when the numbers doubled in a month, but is it enough?
Let’s have a closer look at the figures and the program as a whole.
The program is designed to allow homeowners to enter a three month trial loan modification, during which they are supposed to provide lenders with all the documentation required for a permanent modification. However trials are stretching for much longer. Servicers blame homeowners being slow at handing in paperwork; homeowners blame servicer of losing paperwork and making mistakes. Treasury’s response to this mess has been to allow for longer trial periods, up to 5 months. However mortgage servicers have kept homeowners in what is being called “trial purgatory” for up to nine months.
This seems to be one of the big issues the HAMP program faces, a complete gridlock of loan modification trials. Have a look at these figures:
In October Treasury reported that 487,081 trial modifications had been started. Three months later not even 24% of those trial modifications had been resolved one way or the other. Let’s put this another way 76% of the current trial loan modifications are in limbo. Treasury has pointed out that 46,000 homeowners have been approved for a permanent loan modification but are yet to sign the paperwork that will make it final. Even if this were true it would still mean that 66% are still waiting for a verdict on their loan modification.
Consumers are blaming big banks for creating this loan modification limbo and the figures seem to support that claim. The big four banks, Bank of America, JPMorgan Chase, CitiMortgage and Wells Fargo represent more than 60% of the 3.4 million mortgages eligible for the HAMP program. The best of the bunch Wells Fargo has only completed 13% of its eligible loan modifications. The rest are doing much worse. Bank of America the largest mortgage provider by far is performing the worst, converting only 3% of their 1 million eligible mortgages into permanent modifications.
No matter how Band of America tries to window decorate these figures advertising they have surpassed the 200,000 trial modifications barrier, this is all rather pathetic. We are not even saying they should convert more trials into permanent loan modifications but at least put homeowners out of their misery and tell them what the outcome is, one way or another.
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Loan Modifications are big business. People are willing to pay large sums of money to modify their mortgages to monthly payments they can afford. Many companies are willing to supply financial knowhow and procedures to smooth the process towards a loan modification.
These companies advertise as experts that understand all the ins and outs of the loan modification world. They claim to speed up the procedure and know all the right answers a layperson could not possibly do on their own. In order to attract customers loan modification agencies like 1ST Foreclosure Prevention are opening affiliate programs. These affiliate programs offer incentives and bonuses to sales representatives that attract new customers in the same way that insurance or car salespeople take a cut from a sale.
Affiliate Sales Representatives are asked to have a strong motivation and enthusiasm as well as good communication skills with the borrowers, which They are not expected to be mortgage or loan experts, that is the job of the company, the only responsibility they have is to attract the customers. The attractions for the posts are mainly the money and being able to work from home.
Things were never so good for loan modification and refinancing companies so they are all on a hiring spree. The five digit salaries loan modification companies advertise are sure to attract attention. The question is if borrowers should pay agents for loan modifications.
As usual your opinion will depend on if you stand to gain or not from the operation. Loan modification agents will argue that loan modifications are complex procedures which the average layperson is unsuited to perform and that loan modification agents offer a valuable service to borrowers that might otherwise not be able to take advantage of a loan modification.
The Obama Administration is however encouraging borrowers to turn to government sponsored loan modification advice centers for free help and are discouraging homeowners from paying for a service they can do themselves or get done for free.
Whatever you decide to do it is important to remember that loan modification agents, no matter how good they are, cannot guarantee a loan modification will be accepted, that is up to the lender. Other factors like the mortgage’s NPV test also condition the outcome of the loan modification application. This means that the agent has no way of guaranteeing success no matter how much he charges. It is important not to pay for loan modification services upfront before they are carried out.
It is also important to understand how the loan modification process works and what you are expected to supply to your lender. Loan modifications depend on two main factors: What your house is worth and what you can afford to pay. Loan modification agents will help you to fill in the loan modification paperwork in a way that does not undermine your chances of getting a loan modification.
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