The loan modification numbers are down. The housing crisis has now been lingering nearly five years. The only way troubled house owners whether underwater with value of house being less than loan due amount or others facing foreclosure can get out of the ditch is by modifying their loans. It lowers the rate of interest on the mortgage and this result in monthly payments becoming affordable. The programs on loan modification are offered by the companies servicing the mortgage.
The ultimate goal is not to allow the house to be foreclosed upon – nobody wants it; foreclosure is detrimental for the lender, the borrower and the community. The lenders were previously over eager to foreclose but since the onset of the housing crisis they have swallowed more than they could digest. They do not want to sit with unsold houses bearing expenses pertaining to taxes and maintenance while attracting the ire of the communities. As such modification is the best for all concerned.
Unfortunately however mortgage modification route has not been an easy one. The homeowners spend a lot of time, energy and money running from pillar to post to get the work done. The modification system has not been streamlined as yet because the banks lack the infrastructure to deal with this deluge of modification applications. The Obama government has come forward with their signature programme or HAMP to get the modification done but the plan is not being implemented with speed and force. All told – the housing loan modification numbers are down but it is being activated through private programmes of the lenders.
The complication is that in most of the cases the original mortgage has been sold to investor or investors; frequently Fannie Mae and Freddie Mac have bought these. The investor then engages a servicer to collect dues, pay off the taxes, the insurance and deal with customer care. The applications for loan modification have to be submitted to the servicer.
If the original loan has been sold to many investors then the issue becomes complicated and uncertain. The mortgage insurer too has to give the nod to the modification. Another problem is that of lenders of the second order – those holding second liens. When the house is sold the dues of the first lender has to be satisfied primarily and if there is anything left over the second lien holders get their dues. In the present mood of the market the property does not fetch satisfactory price. The loan cannot be modified without the second lien holders agreeing to it and generally they do not give the green signal. This leads to the holding up of the entire process.
Over the past one year the housing loan modification numbers have dropped by about one third; the numbers are tumbling faster than the pace of delinquencies as well as foreclosures. During the first three months 207,000 borrowers could modify their loans – it being 31% drop from the first quarter of 2011 when 298,000 got their loans modified. The drop in new foreclosures taking off and delinquencies (60 days) dropped respectively by 8.1% and 7.2% respectively.
Of these loan modifications 30% had been done through HAMP – the proportion being the same from what it was one year previously. The others were channeled through private modification plans. In the latter category the borrowers saw their principal as well as interest reduced significantly (10%); it compares well with 57% during the first three months of 2011. The conditions for proprietary modifications of the lenders are more lenient than HAMP and hence the tip is in their favour.