More than half of mortgage holders who get help fall behind again

The following article is being shared from NY Daily News:

More than half of mortgage holders who get help fall behind again, just as lenders are ramping up efforts to avoid more home foreclosures, according to a new report by bank regulators.

More than 50% of homeowners with loans modified in the first half of last year had missed at least two months of payments a year later, government officials said Wednesday.

But the results were better among those who saw their payments drop substantially.

About a third of borrowers whose monthly payments were reduced by 20% or more fell behind again within a year. That compares with more than 60% of borrowers whose loan payments weren’t changed or increased.

The report on 34 million home loans highlights a significant challenge for the Obama administration’s plan to tackle the foreclosure crisis, backed by $50 billion in money from the financial industry bailout fund.

The administration’s effort got off to a slow start, but has picked up speed in recent months. As of last month, about 360,000 borrowers, or 12% of those eligible, signed up for three-month trial modifications. They are supposed to be extended for five years if the homeowners make timely payments.

Traditionally, most lenders have offered payment plans that allowed borrowers to catch up on missed payments. But those modifications often result in a higher monthly payment.

Under the administration plan, borrowers’ interest rates can go as low as 2% for five years. Bank regulators say they have pressed lenders to shift their focus to modifications that reduced borrowers’ payments.

My Comments to this article are below:

The success of any Home modifications will require lower monthly mortgage payments. Many people who want to stay in their home cannot afford the payments they have and are looking for lower mortgage payments. Unfortunately, loans being modified are not reducing these payments and therefore more people are defaulting on these modified loans. Also, there are people being offered modification programs who clearly do not qualify for this plan like those people who are unemployed. Its hard to modify a loan when you have no ability to pay? The success of any home modification plan will require the principal balance on the loan to be reduced to the “current market value”of the home. This is the only way to make the payment more affordable. Interest rate reduction and extending loan term are not enough. Finally, if the Fed really wants to help homeowners then it should guarantee the loss in the principal reductions. For example if a homeowner has a home loan worth $100,000 but the property is worth only $50,000 then the new loan should be modified at the current market value of $50,000 and the loss should be guaranteed by the Fed.

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