Loan Modifications: Many Hurdles

Mortgage Modification: Many More Hurdles

The administration's loan modification program has helped 55,000 troubled borrowers so far.
The housing crisis has become very serious and complex and the fixes aren’t so easy according to CNNMoney.com. Most of the loan servicers are flooded by applications, their faxes machines are full and churning out copies of paper 24 hours a day. The foreclosure is rising with the increase in the unemployment rate.
Nearly three months after President Obama first announced his $75 billion mortgage rescue effort, his administration is still refining the program in hopes of reaching its goal to save 9 million homeowners from foreclosure. As the NY times reported few days ago, so far, more than 55,000 borrowers have been put into trial modifications, which become permanent if they keep up with payments for three months. Hundreds of thousands more have applied.

Well, as we speak this loan modification process is getting longer and complicated. The initiative must still get over several hurdles before its chances for success can be determined.

Stressed Servicers:

The program's guidelines were issued on March 4, but it took many servicers weeks to reprogram their systems and train their staffs. Many did not even start accepting applications until early- to mid-April, frustrating troubled borrowers forced to wait to find out if they qualify for lower rates. Servicers are still learning and giving training to their newly hired employees.

This is causing lots of delay and confusion. It is a constant battle of sending the lenders every day something new. I remember in one instance the lender demanded an electricity bill for the month of April, which was promptly sent to them by my staff. Quite often they would not acknowledge anything sent to them, and same happened with us many times. Now, the servicer is demanding a utility bill for the month of May. It is shocking they never receive anything, or refuse to acknowledge something sent already.

Angry investors:
One complicating factor in the mortgage meltdown is the fact that the loans are bundled into securities and then sold off in pieces to investors. Some servicers have blamed the slow pace of mortgage modifications on the fact that their contracts with investors limit their ability to adjust the loans' terms. To address this concern, Congress is currently finalizing a bill that would give servicers a "safe harbor" in modifying mortgages.

"The goal of 'safe harbor' is to allow servicers to use these program to their fullest capacity. Some investors, however, are lobbying hard against the bill, saying that the contracts already give.

Although the administration has since expanded the modification requirement to cover second liens, some investors still aren't satisfied. They want the administration to treat second liens in the modification program the same way it does in the Hope for Homeowners program, which requires these liens to be extinguished.

Escalating unemployment:
The rising unemployment rate is threatening to reverse any gains being made in stabilizing the housing market. When homeowners lose their jobs, they often can't afford to stay in their homes. Modifications often can't help, experts say.

Some of these folks another modification. This may not be an unending process. Another bad thing, which I noticed is that homeowners are getting used to stay free and without any payment for their homes, or feeling any remorse of not paying. This, of course, is a legal and a binding conract. They are dreadful to pay even a modest payment. This is very unfortunate when an attorney modifies the loan on an attractive terms, but still the homeowners are reluctant to take it. We are creating a socialistic mentality. Of course, we live in USA and not in some communist country or even in the former USSR. These are legal contracts, and decent human beings should honor these contracts. The homeowners should be thankful if an aid is provided to them to get through this turbulent time. Of course, it is loan modification, definitely not a loan rewrite or a refinancing. Each loan modification stops foreclosure and also fixed our economy.