Many believe that the only way to get out of an economic crisis is to buy yourself out of it. To spend enough to jumpstart the economy again. Loan Modifications are one of the tools the Government are using to get homeowners out of the whole they dug for themselves before they bury the whole economy with them.
Such is the determination and commitment the government has to this project they have earmarked 75 billion dollars to stimulate loan modifications on qualifying mortgages. That is the Hope anyway. The Hope is that changing the mortgages, reducing monthly payments, extending tenures, providing bonuses to borrowers as well as lenders and dropping interest rates will buy America’s homeowners out of the credit crisis.
Sadly it could seem that Hope, empty hope is all there is to this program. One of the foundations of the program is the assumption that banks will make an effort to create loan modifications for homeowners that are at risk of losing their homes. This is done by providing incentives to banks and homeowners to agree to sustainable loan modification. However the problem is that banks only have to “put forth an effort” and provide basic statistics in order to receive the stimulus. They are obliged to provide statistics on how many homeowners they’ve contacted but in no way forced to approve any loan modifications or even stop foreclosures while a loan modification is arranged.
Even if a loan modification is approved there is no assurance that it will be beneficial or even worthwhile for the homeowners. The cost of getting the loan modification can be so expensive and the monthly payment reduction so low it is not worthwhile to go through. One borrower is reported to have spent nearly $10,000 for a loan modification that only reduced the monthly payment by $25. To add insult to injury this outrageous waste of money will probably end up being a statistic that is used to show how generous and helpful banks are being.
After all is said and done the loan modification program is progressing very slowly. The number of loan modifications is around 200,000 while 9 million home loans are at risk to foreclose by next year.
Because there is no requirement for banks to make a real effort on loan modifications that are not profitable for them, the question remains if it is reasonable for us to expect banks to invest in providing loan modifications that are going to cost them money, money they are not likely to see turn any profit.
A more creative approach is needed to find a real solution to the credit crisis. Loan modifications on their own do not seem to the answer. The Hope Mortgage Program is actually only geared for homeowners that can still deal with a mortgage at a reduced rate. Those worst off cannot expect any help from the government.
Last 3 posts by Andrew
- Is Strategic Foreclosing The Best Loan Modification For You - November 19th, 2009
- Loan Modifications: 3 Reasons They Are So Slow - November 17th, 2009
- Loan Modifications: The Loan Workout Formula To Accelerate Your Modification - November 15th, 2009
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