Government Loan Modification Programs

The current federal government has stated that it is a priority to see that there are at least a half million home mortgage loan modifications this year. While a great idea, it remains to be seen whether it can be achieved. A recent U.S. Treasury study indicated that there were about three million homes that are at least two months delinquent on their mortgage payments, and have been targeted for assistance.

However, only roughly a fifth of them have so far actually sought the government’s help and about twelve percent, or about 360,000, have completed the modification application process. Further, in most of these cases the modification program is for a trial period of only three months. This leaves open to speculation the question of possible foreclosures coming back later. Opponents argue that three months is just not enough time to make a genuine difference, and that the program is largely window dressing.

In addition, there are many lenders that have instituted their own internal programs to locate candidates for loan modification programs, in an attempt to forestall foreclosures. In both the government as well as private initiatives, one major hurdle has been the enormous amount of complicated paperwork that is required. Some say that the modification paperwork is longer and more complicated than the original loan process was. Still, there has been progress. It is however; fair to say that it has not been as great as had been hoped.

Meanwhile, the foreclosure problem continues to worsen. For example, foreclosures nationwide last August were up nearly a fifth from the previous year’s level. Clearly, this is not the hoped for trend. In Illinois, a pivotal state, that same August month saw Notice of Default letters, the first step in the foreclosure process, go up to seven thousand. This was twice the number sent out in the previous two months combined. Again, not the goal that was in the minds of the planners.

Many of the modification candidates that did push through the paperwork were rejected. Statistics about the number of rejections are hard to come by but the government has acknowledged the problem. Perhaps more importantly, the reasons for rejection are not available at all.

This makes it difficult, if not impossible, to know where and how to improve the process. The government has instituted procedures aimed to capture this information for future applicants but again, it remains to be seen how effective the program will ultimately be.

Some people, who are knowledgeable about the mortgage and foreclosure process, say that between the temporary nature of the government’s program and the complicated process, the idea is destined to fail. It has been suggested that an incentive be given to private sector lenders to seek out and handle the modifications.

The government would provide certain guarantees and a bonus for success, but would leave the details and methods to the private sector. This current government seems preoccupied with taking a more direct approach. The debate will no doubt rage on. Meanwhile, the foreclosure mess, and all its negative byproducts and ancillary problems, continues to worsen.

Original: Government Loan Modification Programs