Loan modifications are lowering monthly payments

Federal bank regulators have just reported that 75% of the loan modifications lenders made in April, May and June of this year reduced borrowers’ monthly payments. Smaller monthly payments are obviously great for borrowers. But they’re also good for lenders, because borrowers with lower payments are less likely to re-default, according to the U.S. Office of the Comptroller of the Currency and the Office of Thrift Supervision .

The report also revealed lenders are much more willing to engage in short sales than they were 12 months ago. In a short sale, the proceeds fall short of the balance owed on the mortgage, but the lender agrees to accept this as full payment because of a borrower’s financial hardship. Short sales are another way to reduce the number of foreclosures.

It was encouraging to see that from April to June, new loan modifications and repayment plans were up 74.8% over last year, easily outnumbering newly-initiated foreclosures.

Under the government’s Making Home Affordable program, borrowers must show they can make their modified payments for a short trial period before receiving a permanent loan modification. From April to June, both trial and permanent loan modifications made up 58% of all actions taken by lenders to help people retain their homes. People with mortgage issues can get free assistance at MortgageReliefOnline.