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Loan Modifications: High Default Rates At Banks

Of all loan modifications made at the banks, 22% end up in default. The figure for the government sponsored HAMP is only 11%.  Why the big difference? HAMP has been able to lower the monthly payment by $608 on average. On the other hand, the banks are lowering the monthly payment by only $307.

Many homeowners are living paycheck to paycheck. Therefore the difference of $301 is huge. This amount is enough to push them over the edge into default.

Home Affordable Modification Program (HAMP) is a government program and it is very simple. Homeowners who are having trouble with their mortgages apply to the federal government for help. They have to meet certain criteria. If they qualify a “trial” modification is granted. During the trial modification period the homeowners must make their payment on time without failure. If this phase is successful then a permanent modification is given. Unfortunately less than 45% of trials move on to permanent loan modifications.

Under the banks’ system there is not a trial period. Therefore one can argue that many of the “failures” from the HAMP process are not counted under the bank system. This makes it difficult to compare the two modification systems.

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Related articles

• Loan Modification Programs and Qualifiications (brighthub.com)
• Economix: The Failure of Mortgage Modification (economix.blogs.nytimes.com)

Add comment November 5th, 2010

Throwing good money after bad…rescuing homeowners

It’s time to cut the bull. Move on. Billions of dollars have been spent on the government home rescue plans and the housing crisis is still here with us. It is not getting any better. House prices are down about 50%. As much as 60% in some areas. California, Nevada and Arizona have been hit hard.

My suggestion. The government buy all these home 50 cents on the dollar. The homeowner walks away. The home owners rents the property as a lease sale agreement. The deal is for 3 years. In 3 years he has to buy the house at an agreed upon price. If he doesn’t he loses all the extra downpayment money.

As it is now investors with cash are going to make a killing. The government can cash in. The homeowner gets a chance to start all over again with a clean slate.

Patrick

Add comment March 27th, 2010