This is great news, but there is a down side.  In the process of saving your home, you may lower your credit score. Anytime you are delinquent, have your payment adjusted or loan terms adjusted, you take a credit score hit.

Some homeowners who opted into a trial modification under Making Home Affordable are finding this out the hard way.  They make a few payments at the lower amount, only to find out their score has dropped.  Being in the trial program is no assurance they will even be accepted for permanent modification, yet they are penalized about 100 points just for asking for help.

The credit industry is, of course, quick to defend this practice of penalizing those who even ask for a change in loan terms.  The government realizes this is a side effect.  Consumer advocates deplore the practice on the grounds that people should not be zinged for trying to do the right thing.  All of these parties encourage people in trouble to ask for help before their homes go into foreclosure, but the credit score drop is a disincentive to many.

However, for most who seek help, this is an irrelevant side effect, especially if they are already behind on payments and close to losing their home. It’s like telling people on the sinking Titanic that they will be billed more if they chose a red lifeboat instead of a blue one.  If you’re drowning, you might prefer the blue one, however, if the red one is the only one in sight, paying more for red seems pretty reasonable.

Remedies such as loan modification, bankruptcy, and even short sale or foreclosure are last resort remedies that you might choose when you have no other options.  In a perfect world, you would be able to pay your bills without needing help.  In the real world, if you need help, your best option is to use the help accessible to you.  The time to ask is - as soon as you need it.  There may be a credit score impact with any remedy, but the impact is less the earlier you ask.

Express Homebuyers will buy your home for cash.  Call us today at 1-877-804-5252 or check out our helpful website.  We will make you an offer on your first call, provide free reports to help you make your selling decision, and even offer options to chat with one of our helpful consultants.

HAMP was conceived promptly to meet a crisis, so banks had to prepare to implement it quickly.  Participation in the program was voluntary and even banking giants who had developed their own programs for distressed homeowners did not embrace HAMP immediately.

Though banks have been paid incentives through all phases of HAMP, they have been slow to process modifications; the government has only paid $50 million.  Out of 3-4 million homes that Making Home Affordable hoped to saved, there have been only 170,000 permanent loan modifications so far.

There is lots of red tape involved in modifying a loan, but banks are still not set up to handle the waves of foreclosure, despite increased hiring of processing staff.  As a result, it takes a long time to process the paperwork that is justifiably involved in changing loans.

The Underlying Issues…

Banks may be dragging their feet as they, of course, prefer to have borrowers adhere to original loan terms.  In their defense, the ownership of these loans is complicated.  Many are backed by investors, so multiple investors hold mortgages.  How can these investments be valued?  Who loses what and how much?

Almost immediately, an irony shone through.  HAMP could only be successful if banks were on board, but forcing them to comply was (and is) an issue in itself.  In a free society, can a government force private businesses to rewrite loans and thereby threaten their investors’ pocketbooks?

The current crisis requires that banks pick up the pace in their responses and do so in a way that balances their needs as a business, the concerns of their investors, and the plight of distressed homeowners.  This is a tall order, but one that banks must fill if they ever hope to return to business as usual.

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Under the latest change to the program, banks must offer 3-6 months payment relief to the unemployed. Banks are encouraged (but not required) to cut principle payments, which will be compensated by $75 billion in diverted HAMP funds.

The new guidelines are an attempt to address two major causes of foreclosure: unemployment and negative equity. The crisis started among subprime mortgages that reset but spread to other groups – especially those who lost their jobs or saw their housing values dive. When HAMP was hatched last year, it immediately met criticism because it did not adequately address either problem.

In the original program, HAMP did not demand that principal balances on loans be reduced – even though evidence available at the time showed that this was the most effective way to approach the problem, especially in view of the growing negative equity problem.  Now banks will be offered incentives to reduce principle, but it is still not mandatory that they do so.

The crisis is far from over. Over the next two years, 8 million more foreclosures are anticipated.  Pay-option mortgages will reset, making house payments so large homeowners cannot keep up. Many underwater homeowners finally give up, out of necessity or strategic decision. The current reinvention of HAMP is only expected to help a few hundred thousand people, a couple drops of water in a predicted tsunami of foreclosures.

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Don’t fall for a scam that offers you quick and ready help.  Instead, call a counselor.

Counselors work, according to a recent study by the Urban Institute.  Since 2007, when the National Foreclosure Mitigation Counseling program was founded to help distressed homeowners, $410 million has gone into the program.  Over 750,000 were helped through the end of 2008.  These borrowers were 60% more likely to keep their homes if they received counseling.  Their monthly payments were decreased to an average of $454.

Part of the counselor’s job is to help homeowners evaluate whether they can afford to keep their homes and then to help them gather the loan documents the lender needs to consider a modification.

This is an interesting finding in view of recently released statistics that 51% of loan modifications in the last year were in default by the end of 2009.  Did something change in the finances of those counseled?  Did counseling standards change as new federal programs encouraged more people to seek a counselor?  Were counselors too optimistic and those served so anxious to keep their homes that they agreed to a payment schedule that was still too high for their income?  Further studies into why re-defaults occurred in 2009 will undoubtedly reveal some needed insights.

The newest federal program announced that March 26 attacks the double-headed monster of negative equity and unemployment.  Most analysts of past housing remedies blame the failure of lenders to reduce principal and bring housing values and loan values more in sync.  The new program offers lenders incentives to offer principle reduction and provides temporary help to people who are unemployed.  Even though the program is only hours old at this writing, no one expects that this is the silver bullet that will “fix housing” either.

Counselors are constrained by available programs to offer their clients.  Regardless of the program, counselors link those who can be helped to ways to get help even if the help is not the final answer to their problems.  This stark reality does not undermine the findings from 2008: Counseling works!

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New groups of people are affected. The mortgage crisis started when sub-prime mortgages crashed, but now prime borrowers are increasing as unemployment spreads.  Currently, unemployment is at 10% nationwide.

There are regional differences. Nevada, Florida, Arizona, and California, where the real estate boom was the greatest, still have skyrocketing foreclosure rates, and represent 42% of all foreclosures.  Florida alone has a 25% rate.

There is a Shadow Inventory. Large stocks of foreclosed homes – up to six million of them -have yet to be put on the market by banks.  Considering that foreclosures are still adding to the numbers, it will be several years before housing inventories are stable.

Some rescue programs are mis-targeted. Nearly 700,000 borrowers are in trial loan modification programs as a result of the Making Home Affordable program, but many thousands who are unemployed or are in negative situations don’t qualify.  The programs require that you have enough income to pay a modified mortgage and apply only to people whose “under water status “ does not exceed 125% of the loan value.

Some programs fail (and may be doomed to). The rescue programs don’t go far enough.  The payments after modification are still too high for many people, so they default later rather than sooner.  Also, the modification programs often lower interest and lengthen the time but do not decrease the principle.  People are left with the sense they are paying longer for an overpriced house.

Some well-intentioned programs may elongate the problem. Current programs that keep homeowners in their homes as renters once they surrender their deeds may be creative and compassionate, but also may delay the inevitable: the home must be sold at a later date.

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• While 4 million people could be helped, only 825,000 have been accepted into the program so far.
• Only 66,000 (7%) homeowners in the program have moved into permanent loan modifications.
• On average, homeowners save about $500 per month when their payments are reduced to a maximum of 31% of their income.
• Of the homeowners aided by program to date, 52% needed assistance because they lost income; 11% claimed too much non-mortgage debt; and 6% were unemployed.
• About 50,000 (6%) have been dropped from the program because they did not qualify, provide required documentation, or make all of their payments.
• 25% of participating homeowners have failed to make all of their payments while some have made none at all.

The statistics provided are interesting food for thought. Why aren’t more people applying?  Why aren’t more accepted?  Why aren’t more moving to permanent status?  Why are so many defaulting?

There is plenty of fault to go around.

Banks don’t really want to modify loans; when they do, they seldom modify the principle.  The modifications are doomed to fail for many people, especially if they are underwater and people are still paying big notes on homes that have lost their value.

The fact that some people aren’t paying their loans indicates that the modification wasn’t enough for them, their finances got worse after the modification – i.e., they lost their job, or the home they tried to stay is was too expensive for them.  Perhaps the program guidelines need to be changed or counseling needs to weed out those likely to fail and help them find new housing.

 Express Homebuyers can buy your home for cash to prevent foreclosure.  Check our list of frequently asked questions to see how this can help you, and then call 877-804-3252 to get started.

President Obama promised that nearly 4 million homeowners would be helped through modification, but the initial efforts went slowly as lenders moved slowly.  In July, the President and his staff called lender representatives to Washington and told them to pick up the pace.  The most recent report released December 10 indicated that the program is not only on target but ahead of schedule in terms of people who are at some point in the process.

• 728,000 modifications have been made – 25,318 of them in the Washington, DC metro area
• Borrowers with modified loans are saving an average of $550 per month
• Only 31,382 borrowers have moved from the trial phase of the program to the permanent phase
• So far, most borrowers are keeping up with their payments

The Administration met with lenders and loans servicers in Washington this week to ascertain if they are doing all they can to make the trial conversions permanent.  Meanwhile, the push is on for people in their trial period to sign the paperwork to make the modification permanent.

As noted by Chief of Treasury’s Homeownership Preservation Office (HPO) Phyllis Caldwell, the report proves that “struggling homeowners across the country continue to receive immediate relief in the form of reduced monthly payments and a second chance to stay in their homes.”

These facts contradict a study by a watchdog group that came out the same day as the government report.  The study claims only 10,000 permanent modifications have been completed and echoes Treasury department fears that 40% of people with modified home loans will re-default within 5 years.

For many homeowners, loan modification is a solution that can work long term if the reduction is substantial enough and if the other expenses associated with the home fit within the budget.  For others, who have a home too pricey for them, other debt, or a faltering job, the process may only prolong the agony before they either lose the home or make the decision to move on.

If you are debating whether you should modify your loan or go another route, Express Homebuyers offers an alternative.  We will buy your home for cash and guarantee completion of the process within a couple weeks.  We tell you up front what we will pay; if you agree, you are on the way to a quick resolution.  We even offer you a $2,500 upfront advance so you can plan your fresh start.  Call us at 1-877-804-5252 or check out our Express Homebuyers website for more details.

Homeowners with the ability to pay the mortgage they agreed to when they got the loan are one intended audience for the Making Home Affordable plan set in place by President Obama in February, 2009.  Borrowers with Fannie Mae or Freddie Mac-backed loans held by participating lenders can qualify for loan modifications that hold payments to 31% of incomes.

How the President’s Plan Works

For someone whose payment has risen to 45% of their income, the lender must absorb the loss to reduce the payment to 38%; the government will pay the difference between 38% and 31%. To reach this goal, the interest rate can be reduced to as low as 2% for five years.  Participants are encouraged to work with HUD counselors to assess their housing situation.  The program is free.

Lenders receive incentives when they successfully complete a loan modification, but lenders are so understaffed in their departments that they are slow to respond to eligible homeowners.  At this point 360,165 trial modifications have been started and 571,354  offers made; this represents about 12% of the 3-4 million eligible homeowners expected to be helped. In July, President Obama chided the lenders and asked them to increase hiring to assure that at least 500,000 trial modification are in place by November, 2009.

The original plan was limited to mortgages that were 105% of the value of the home; but this was increased to 125% in July.   In hard hit areas of the country like Nevada, California, and Florida, where percentages of “underwater” mortgages are high, many are disqualified from participating in the program. Critics allege that, because the program does not mandate principle reduction and because lenders have been slow to respond, the program will fall short of its goal of how many people it will help.  The President admonished lenders and loan servicers to increase hiring to assure that 500,000 modifications are in progress by November, 2009.

Loan Modification Won’t Work for Some

Unfortunately, during the housing boom, some homeowners bought homes that are too expensive for them, perhaps by overstating their incomes.  Lured by easy credit terms during the housing boom, these homeowners now find themselves in homes too expensive to heat, maintain, and insure, as well as pay for.  Others have  lost their jobs in this period of high unemployment and may not be able to predict when they will be working again or if their salaries will remain the same.

A loan modification, especially one that doesn’t significantly reduce the payment, can only prolong the agony of foreclosure in these cases.   For people in this condition, as well as for people who don’t want to keep the home, there are better alternatives than loan modification to prevent foreclosure.

Express Home Buyers offers one solution to people who aren’t candidates for loan modification but feel trapped with a high mortgage.  We will buy your home fast – most sales close within two weeks of your accepting our offer.  Since we buy the home directly from you, you do not have to list your home with a real estate agent or deal with banks or lawyer to negotiate a settlement for you.  We even offer you a $2,500 cash advance to help you move to new housing.

We buy homes in Baltimore and Southern Maryland; the Metro DC area; and Hampton Roads, Richmond, and Northern Virginia. Learn more about “The Express Homebuyers Advantage” and make the call to sell your home quick!