The number of troubled homeowners that did not stay current on their mortgage payments nearly doubled in March 2010 (2,879 from 1,499 in February). This causes many, including the Congressional Oversight Panel to doubt the efficiency of the loan modification program.

The problem the U.S.
Photo by Jeff the Trojanhousing market is facing is huge. Around seven million borrowers are late on their payments and risk foreclosure. Although over a million borrowers have entered the Making Home Affordable (MHA) loan modification program (link to article) only 227,922 received a permanent loan modification.

This is how the program works. Homeowners apply for a loan modification with their bank through the MHA loan modification program. Eligibility depends of four main requirements. 1) The mortgaged home must be the borrower’s main home. 2) The mortgage balance must be less than $730,000. 3) The mortgage payments must be more than 31% of the borrower’s income. 4) The borrower must prove financial hardship. Loan modifications aim to reduce monthly payments by reducing interest rates, extending the term of loans and sometimes reducing the principal balance of the mortgage. Nevertheless, these modifications are not automatically permanent. The borrower must first enter a three-month trial period in which he or she cannot be late on payments. Once the trial period has been successful will the borrower enjoy a permanent loan modification.  According to Treasury these measures have saved borrowers over $3 billion in mortgage payments, and the median monthly savings are $512.

Unfortunately, this is not enough. The Congressional Oversight Panel assigned to review the program recently released a report that highlighted its results. The Panel pointed out that only some of those that entered the program will receive a five-year loan modification after their trial period and some of these default regardless.

The Treasury Department had a different view. Treasury highlighted there were 227,922 permanent loan modifications in March, a 35% increase from February and over a 100,000 awaited the final signature of the borrower. A representative from the Department of Housing and Urban Development pointed out that 2,879 failed modified loans represent less than 1% of the total number of permanent modifications. Given how deep in debt many borrowers are, this is no surprise.

Data shows that even after a loan modification sixty percent of borrows redefault on their mortgages. This percentage drops to forty percent when the loan modification reduces monthly payments by 20 percent or more.

John Courson, president of the Mortgage Bankers Association had an interesting comment on this statistic. He commented that if the program can help sixty percent of troubled borrowers, and forty percent default, it was still worth it for the sixty percent that didn’t default. The forty percent that defaulted were going to do so anyway, he argued.

The bottom line is that saving your home when you suffer a serious financial setback is not easy. Many homeowners struggle to create a sustainable budget, compile the necessary information, or have other debts to worry about. If you are struggling with your mortgage payments you should contact a Housing and Urban Development Department approved counseling agency and see what you can do to save your mortgage. The MHA loan modification program is far from perfect but it has helped hundreds of thousands of homeowners keep their homes. If you act soon you increase your chances of being part of that statistic and thousands that redefault on their modified mortgages.

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