Loan Modifications, Story Of Struggle For Banks And Borrowers Alike

If you have been watching the business or economy sections of newspapers, news or blogs you will have got your fair share of loan modification horror stories. At the same time banks are increasing their capacity for loan modifications and seem to be keeping up with government targets, at least for now. So who is to blame?

Are borrowers complaints valid or simple self pity for a situation banks cannot be blamed for? Or, are banks dragging their feet and ignoring the plight of borrowers despite the government being happy to pay the cost for loan modifications.
The Sun Sentinel reported this week on the plight of Kraig and Ana Weiss. The Weisses first agreed to a loan mofication with Bank of America only to have the bank take the offer off the table. Now Bank of America is moving towards foreclosure even though the Weisses are making their mortgage payments.
The strange thing is that federal reports show that banks are restructuring home loans for troubled borrowers, but stories like that of the Weisses are heard all over the country. Where does blame lay, do banks not care or are they doing the best to deal with bad clients that are struggling with unemployment and a worldwide credit crisis.

Counties like Broward and Palm Beach show how hard things are getting with 14,000 homes in risk of foreclosure in August. However banks and service providers claim to be doing their best to deal with the millions of foreclosures requiring a loan modification.
So far the Treasury Department announced they are on target to provide the projected 4 million loan modifications by 2012 after hitting their first goal of 500,000 trial loan modifications a month early.

However this apparent success might cover the fact that only 16 percent of eligible home loans have been modified so work has only begun. The Congressional Oversight Panel for one does not seem too optimistic of the loan modification program performance. Last week the Panel reported that the federal program may not reach the long term goal and encouraged the Treasury to improve their HAMP program or to create new programs to meet the expected rise in foreclosures due to the rise of unemployment.

This rise of foreclosures is fed by a change in the market since the HAMP program started. At the beginning of the year the big trouble were subprime mortgages with high interest rates and devalued price tags that did not allow borrowers to improve their interest rates. However the rise of unemployment has now caused borrowers that have prime mortgages and that would normally be within their means to be at risk.

This means that loan modifications’ main weapon to make mortgage payments affordable, lower interest rates will not be a significant help for prime mortgages that already enjoy low interest rates.