How are Federal Loan Modification efforts going so far?
- 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.