Loan Modifications No Match For Rising US Foreclosures.

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Loan Modifications are the way forward in the opinion of the Obama Administration. A number of federal programs have been placed and are ready to welcome droves of homeowners that need to modify their loans.

However many question the wisdom of loan modifications and if they are the real solution to the increasing number of foreclosures and unemployment. Some have compared the goals and resources of the loan modification program with bailing out water from the Titanic with a cup. It is understood that the task is so great the administration and the measures in place to control the situation will be completely overwhelmed.

The truth is that the goals the loan modification program has set itself are titanic in themselves. The administration is aiming to save three to four million homeowners from losing their homes through foreclosure. If this occurs it will be an amazing feat for many reasons. Not least is the fact that banks and mortgage servicers are not geared to modify loans. Their business up to now has been to set up the loans and collect the payments. The millions of homeowners that now seek a loan modification is challenging the banks to reinvent their work system, sometimes to their own detriment.

In order to make this possible the government has provided generous incentives to homeowners and mortgage providers. The idea is to provide bonuses and incentives to servicers and homeowners when loan modifications are made and honoured by borrowers. The loan modifications must be sustainable and fair for the homeowners to qualify. Homeowners on their part must be regular on their payments in order to qualify for the bonuses and receive the loan modification.

The sad part is that even if the government is successful in delivering the three to four million loan modifications there will still be about 4.6 million people or families that will nevertheless lose their homes by next year. This would be bring the grand total of foreclosed homes to 9 million homes by 2011.

So what can the government and homeowners do to minimize the effect of this crisis and increase the number of saved homes.

Information seems to be, as always, a key player. Many homeowners seem to let loan modifications go because they don’t understand the documents they must sign. Clear language and skilled counsel are key if this program is to have even the most modest success.

Another issue is that homeowners do not make it throught the three month trial period into the final loan modification. Of those that do, many will become delinquent later on in the loan tenure, nullifying the benefits of the loan modification with all the expense it involved.

Mortgage servicers themselves can be an obstacle. Many servicers are continuing to take foreclosure steps with homeowners that are participating in the program, undergoing the three month trial. The government is trying to motivate servicers to help homeowners to achieve the loan modification wherever this is possible.

One factor that could make the whole matter moot is the rising level of unemployment. The loan modifications the government is proposing are not designed for people who can’t afford any substantial mortgage payment due to unemployment. It is designed for homeowners that are not able to take advantage of the current lower interest rates and whose homes have dropped in value and are struggling to pay their mortgage.

If unemployment rates continue to rise the number of homeowners that don’t qualify for loan modification aid will rise increasing the number of foreclosures.