Loan Modifications: Are They Working?
Some of the most lively comments I have seen are on posts about loan modifications and people are frustrated by the entire loan modification process.
It wasn’t like people in the industry needed a “Housing Scorecard” to tell us what was happening on the ground – just ask anyone who has tried to get a loan modification how their experience was.
But just in case further validation was needed that loan modifications aren’t working, the Obama Administration released their monthly housing scorecard which pointed out that the number of borrowers in the Home Affordable Modification Program (HAMP) program who get trial and permanent loan modifications is dropping off a cliff as more and more people are dropping out of the program.
Why aren’t loan modifications working?
In the report, two reasons are given: first that many borrowers prefer a private modification to a government modification program and second that many people are hesitant to modify a mortgage for an underwater mortgage without a principal reduction.
My personal opinion is that the second of those two reasons is the real reason that loan modifications are not working – people who find they are in a situation where they owe more than their home is worth and can no longer afford their mortgage payment are not going to stay in the HAMP program — short sale or foreclosure is a much better solution for people in this scenario.
And for those people who are under water but can afford their home? As long as they have a Conventional or FHA/VA loan, and don’t owe more than 125% of what the home is worth, the Home Affordable Refinance Program is a better solution than the Home Affordable Modification Program. If you have good credit, can afford your home and are looking to reduce your payment – getting a refinance done under the HARP program is going to be much easier than going through a loan modification under the HAMP program.
And if you have a jumbo loan and can no longer afford your monthly payment on a house that is worth less than you owe on your mortgage?
Short sale is most likely going to be your best option (in my opinion)… no matter what anyone from a loan modification company says here in the comments.
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