U.S. Weighs requiring Lenders to consider Modification Prior to Foreclosure

The Obama administration, currently under serious pressure to aid millions of troubled homeowners who are in danger of losing their homes, is seriously considering banning foreclosures unless lenders examine them first for potential modification.

That would be a step up from the current practice that strongly encourages, but does not mandate lenders to evaluate defaulting borrowers for a modification. A Treasury Department spokeswoman, Meg Reilly, recently said that the proposed foreclosure ban was “one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts.”

The government could certainly profit from some favorable public relations for its modification program which has generally been considered disappointing.

Started last year, the current program was intended to help as many as four million homeowners. However, it has fallen far short of those goals. The Treasury Department has said 116,297 loans have been permanently modified while more than 800,000 more are in trial programs and remain unresolved to date.

The Mortgage Bankers Association has said that its members are already doing what the administration is now proposing and that lenders generally utilize foreclosure as a measure of last resort after all other available options, including loan modification, are exhausted.

The current modification program was designed primarily for people who had sub-prime loans, and not for unemployed borrowers with high-quality loans who are now unemployed. Slightly adjusting the interest rate downward for an unemployed family generally will not provide an adequate amount of financial help.

The Mortgage Bankers Association just announced their own plan for reducing foreclosures. In it, lenders and mortgage loan servicers would reduce the payments of unemployed borrowers for up to nine months while they continue to search for new jobs. The banking group also said that the servicers would need special loans from the Treasury Department in order to pay for the program. So far, the Obama administration has not commented publicly on this new proposal.

Most experts believe that only a resurgent employment market that provides new jobs will prevent the generation of new foreclosures. The Mortgage Bankers Association also said that the number of borrowers entering default had declined unexpectedly during the fourth quarter. However, the government has reported that home prices dropped 1.6 percent in December, another indication that the real estate market is anything but improved.

While the U.S. economy has been showing some signs of improvement, there is ample evidence that the mortgage foreclosure epidemic is a long way from over. It is also clear that pending foreclosures require some positive steps by the lenders whether they be taken willingly or mandated by government action. Only time will really tell, and in the interim, it appears that many troubled homeowners will still face considerable pain in the months ahead.

Original: U.S. Weighs requiring Lenders to consider Modification Prior to Foreclosure