Thursday, February 14, 2013

Loan Modification Plans May Be Falling Short

The federal government is expanding its mortgage loan modification program, but it may be too late to bring relief to struggling homeowners.  Started back in spring 2009, the U.S. Treasury Department’s Home Affordable Mortgage Program (HAMP) doesn’t seem to be living up to its hype.  A Huffington Post report emphasizes that when the program was introduced, President Obama “promised to help 3 million to 4 million borrowers” through loan modifications that would restructure their mortgages in order to lower monthly payments and prevent foreclosure.  Yet according to an article in North Jersey News, this program “has fallen well short of its goals.”  As of January 2013, nearly $30 billion funds have been allocated for homeowner assistance programs and only $2.3 billion have been spent.  Further, only about one million mortgages have been permanently modified under the plan, compared with 4.8 million loans modified through private programs.  Despite these problems, the government is creating new guidelines in another attempt to help homeowners keep their homes.

Why Hasn’t the Modification Plan Been Effective?

According to many homeowners, the program is too strict.  One New Jersey woman indicated that she and her family were turned down three times for a loan modification through HAMP.  David Stevens, a former housing official in the Obama administration, indicated that the program has tough guidelines in order to ensure that funds aren’t spent on homeowners who plan to abuse the system.  Others cite different problems for the failures of HAMP.  For example, a lawyer at the National Consumer Law Center indicated that the problem lay with mortgage servicers, who weren’t interested in taking on the added expenses associated with loan modifications.  Some advocates blame the federal government, arguing that mortgage servicers should have been legally required to do loan modifications instead of simply being encouraged to do so with incentives.  Strikingly, the government-owned “mortgage giants” Fannie Mae and Freddie Mac have never been required to forgive mortgage debt, and new changes to HAMP won’t address this problem.

However, advocates for HAMP indicate that it has had a positive effect that certain consumer advocates overlook.  Andrea Risotto, a U.S. Treasury spokesperson, said that the government program opened more doors for borrowers to keep their homes than ever before, and that on average, homeowners who received HAMP loan modifications now save a median $544 per month.  Some consumer advocates agree, pointing out that loan modifications through HAMP have steadily increased in number since its creation in 2009, and that the program still has a chance to meet its goals by the end of 2013.

What are the New Changes and How Can They Help You?

Starting in 2013, the Treasury Department will pay Fannie Mae and Freddie Mac the same loan modification incentives as banks.  Although Fannie and Freddie won’t be required to do loan modifications, these incentives should lead to more of them in 2013.  More significantly, the government has extended HAMP for an extra year.  When the program was established in 2009, it was set to expire by the end of 2012.  Now, the federal government has until the end of 2013 to meet the goals it originally laid out.

Additionally, the eligibility guidelines have “been relaxed” in order to help more homeowners.  While HAMP initially was limited to homeowners whose mortgage payments “took at least 31 percent of their total monthly income,” the new guidelines permit homeowners with more affordable mortgage payments to qualify for assistance.  

Are you behind on your mortgage payments and risking foreclosure?  You may qualify for a loan modification or other assistance.  A foreclosure attorney can help with your options.

Related Blog Posts:
Underwater Property Owners Step Away from the Cliff; Att. Gen. Madigan Announces $3 Million for Foreclosure Mediation Programs, but will They be Effective?

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