Limbo Archives – Refinance – Mortgage Refinancing Rates And Information

Loan Modifications Update: The Spin and the Truth

March 24th, 2010 No comments

Loan Modifications are going through an interesting stage. Enormous efforts are being made to save homes from foreclosure, and while some results seem to be made, millions are still heading straight to a foreclosure. The government has increased the pressure on loan servicers and lender, and relaxed the requirements for a HAMP modification. What have been the results? Is there any good news to share? This short article will look into the good news, and the bad, of loan modifications at the end of March 2010, and try and separate the spin (a.k.a propaganda) from the real news.

The Spin: There has been a 45% increase in the number of permanent loan modifications in February 2010, according to HAMP.

The Truth: The total number of permanent loan modifications is still only around 170,000 loan modifications.

The Spin: Homeowners that receive a loan modification will enjoy much lower mortgage payments because they are granted a fixed 2% interest rate for five years.

The Truth: This is true, payments can be lower for borrowers that receive a modification. Unfortunately there are still more than 830,000 homeowners that are awaiting a decision on their temporary loan modification, and are languishing in loan modification limbo.

The Spin: The figures look worse than they are because there are over 91,000 troubled borrowers that have been approved for a permanent modification, but has not signed the final paperwork yet.

The Truth: Granted, however there were also 90,000 trial loan mods cancelled.

The Spin: More than 1.35 million trial loan mods have been extended, which includes over a million HAMP modifications.

The Truth: The vast majority of these mods are trial loan modifications, and in any case, only represent a 35% of the troubled homeowners the Obama administration predicted the plan would help. It must also be noted that half a million of these troubled homeowners could easily lose their trial modifications. A even more worrying fact is that more than half a million of borrowers on a trial modification have already made the three monthly payments. Why? Apparently many will not receive the permanent modification because lenders have finally decided their income is too high, or too low, to justify a modification. The benchmark for qualifying, or not, is set in such a way that having just a few hundred dollars more or less in your banking account can make the difference between approval or denial.

This had created in many the feeling that trial loans are often just a way for banks to squeeze a few months mortgage payments out borrowers that either had no hope of qualifying or the bank feels they are hopeless cases that will most likely re-default whatever measures are taken.

In conclusion, and to be fair, there has been some progress in the last months. However, this is too little, too late for most homeowners. However, a new problem now arises. Now a new wave of unemployed troubled homeowners with prime mortgages is hitting the housing crisis shore. It is unclear what solution loan modifications can provide when the mortgage already has low interest rates and a long tenure.

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Loan Modifications Latest Figures, Limbo, Trial Purgatory And Other Horror Stories

January 22nd, 2010 No comments

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 31^st. 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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