A Call for Realistic Mortgage Modifications that Actually Help Home Owners, Not Just the Banks.
Until very recently, most loan modification plans have overwhelmingly benefited banks with short term arrangements designed to recoup their losses, only postponing foreclosure and providing no real solution for struggling home owners.
A strong and growing collection of voices is now bringing hope to beleaguered consumers in a call for loan modification standards that will keep families at home with home loan modifications that work for the long term.
U.S. consumers are missing payments on their mortgages, credit cards, and auto loans, as well as declaring bankruptcy with increasing frequency as job losses mount and the U.S. recession deepens, according to data from one of the largest U.S. credit bureaus.
The Office of the Comptroller of the Currency and the Office of Thrift Supervision, both key U.S. banking regulators, report that:
*After three months, 19 percent of home loans that had been modified (in the first quarter of 2008) were 60 or more days delinquent or already in the process of foreclosure.
*After a six month period, nearly 37 percent of mortgage loans modified in the first quarter were 60 or more days delinquent.
*The rate of re-default jumped to an estimated 53 percent after six months and to 58 percent after eight months, according to John Dugan, U.S. Comptroller of the Currency.
The Comptroller gave no explanation for this disturbing trend, yet many mortgage industry analysts see a clear link between this growing rate of re-default and loan modification practices that tend to heavily favor the mortgage lender.
John Kealey of ModPro, Inc. says lenders are not doing enough to help during this mortgage crisis:
"Too many lenders offer modifications that only benefit the lender and provide no benefit to the homeowner. Forbearance plans offered by many banks don't reduce the interest rate and actually increase the borrowers monthly payment so that the lender can recoup the past due amount."
Mr. Kealey explains, "This type of modification provides no benefit to the borrower and puts them on a crash course for foreclosure. The possibility of [traditional] refinance doesn't exist for these borrowers. Interest rates need to be reduced to a standardized rate for loan modifications."
This foreclosure crisis will not be resolved by short term solutions that only stall the process. New and consistence loan modification practices are needed that will find a balance between the needs of the lender and the means of the homeowner.
Sheila Bair, chairman of the Federal Deposit Insurance Corporation (FDIC), who has been pushing for fast and systematic loan modifications, said regulators need to examine re-default data more closely.
"I think it's very important to look at this data carefully and know what it says and what it doesn't say," Bair said. The current statistics clearly indicate that loan modification plans to date have not been working. With banks experiencing a glut in foreclosed real estate, taking over more foreclosed properties does not seem to be in their best interest. Creating loan modifications that home owners can actually afford over the long term will also allow lenders to continue to generate income.
Under the FDIC's proposed plan, the government would pay home loan servicers $1,000 to cover the expenses of each home loan that is modified with monthly payments lowered to an affordable level. The government would also share up to 50 percent of any losses incurred if those modified loans were to re-default.
John Kealey sums up the situation, "Establishing guidelines and standardized interest rates for modifications is a necessity. Without these measures, those lenders who are unwilling to reduce interest rates and offer an affordable solution for their customers, will continue offering bad modifications that end up in home foreclosure for more families."
For more information about the company, author, and the FDIC's proposal, visit http://www.Modproinc.com, call Modpro, Inc. at 866-257-0868, or send an email to John@Modproinc.com.
A strong and growing collection of voices is now bringing hope to beleaguered consumers in a call for loan modification standards that will keep families at home with home loan modifications that work for the long term.
U.S. consumers are missing payments on their mortgages, credit cards, and auto loans, as well as declaring bankruptcy with increasing frequency as job losses mount and the U.S. recession deepens, according to data from one of the largest U.S. credit bureaus.
The Office of the Comptroller of the Currency and the Office of Thrift Supervision, both key U.S. banking regulators, report that:
*After three months, 19 percent of home loans that had been modified (in the first quarter of 2008) were 60 or more days delinquent or already in the process of foreclosure.
*After a six month period, nearly 37 percent of mortgage loans modified in the first quarter were 60 or more days delinquent.
*The rate of re-default jumped to an estimated 53 percent after six months and to 58 percent after eight months, according to John Dugan, U.S. Comptroller of the Currency.
The Comptroller gave no explanation for this disturbing trend, yet many mortgage industry analysts see a clear link between this growing rate of re-default and loan modification practices that tend to heavily favor the mortgage lender.
John Kealey of ModPro, Inc. says lenders are not doing enough to help during this mortgage crisis:
"Too many lenders offer modifications that only benefit the lender and provide no benefit to the homeowner. Forbearance plans offered by many banks don't reduce the interest rate and actually increase the borrowers monthly payment so that the lender can recoup the past due amount."
Mr. Kealey explains, "This type of modification provides no benefit to the borrower and puts them on a crash course for foreclosure. The possibility of [traditional] refinance doesn't exist for these borrowers. Interest rates need to be reduced to a standardized rate for loan modifications."
This foreclosure crisis will not be resolved by short term solutions that only stall the process. New and consistence loan modification practices are needed that will find a balance between the needs of the lender and the means of the homeowner.
Sheila Bair, chairman of the Federal Deposit Insurance Corporation (FDIC), who has been pushing for fast and systematic loan modifications, said regulators need to examine re-default data more closely.
"I think it's very important to look at this data carefully and know what it says and what it doesn't say," Bair said. The current statistics clearly indicate that loan modification plans to date have not been working. With banks experiencing a glut in foreclosed real estate, taking over more foreclosed properties does not seem to be in their best interest. Creating loan modifications that home owners can actually afford over the long term will also allow lenders to continue to generate income.
Under the FDIC's proposed plan, the government would pay home loan servicers $1,000 to cover the expenses of each home loan that is modified with monthly payments lowered to an affordable level. The government would also share up to 50 percent of any losses incurred if those modified loans were to re-default.
John Kealey sums up the situation, "Establishing guidelines and standardized interest rates for modifications is a necessity. Without these measures, those lenders who are unwilling to reduce interest rates and offer an affordable solution for their customers, will continue offering bad modifications that end up in home foreclosure for more families."
For more information about the company, author, and the FDIC's proposal, visit http://www.Modproinc.com, call Modpro, Inc. at 866-257-0868, or send an email to John@Modproinc.com.
