Alternative Loan Modification Programs Not Limited to the Feds

The Home Affordable Modification Program (HAMP) launched in March of 2009, with more than 300,000 modifications in effect as a part of the program. However, private-sector loan servicers have processed more than 800,000 modifications in 2010 alone and private modifications are growing.

With the government reporting monthly and private institutions reporting next to nothing, questions about the true success (or failure) of both HAMP and alternative programs abound. Here’s what we know…

Lower monthly payments reduce default rates. We hardly need to explain why, but only 40% of modifications that involve lower payments default or become delinquent, compared to nearly 70% of modified loans that create higher monthly payments.

Newer modifications are showing better results. Probably because the newer plans involve lowering payments rather than increasing them.

Redefault rates on sub-prime modified mortgages could remain high. Modified prime loans have a slightly lower default rate (still above 50%).

Eligibility standards for HAMP modifications aren't clear-cut or applied consistently. As with many government programs, it’s hard to understand exactly who is eligible and who gets what when. Putting all borrowers on equal footing and making the rules clear, has helped private modifications outpace their federal counterparts.

"There's more solutions than ever before to avoiding foreclosure," says Faith Schwartz, senior adviser at Hope Now. "Proprietary modifications have picked up quite a bit. Foreclosures cost a lot more, so (servicers) will work hard to modify mortgages."

Homeowners do have some options for loan modification without federal aid. Still, alternative doesn’t necessarily mean better – it’s just different. For example, HAMP is designed to help borrowers hold on to the modified mortgage for five years. Alternative modifications aren’t held to the same standard, and may provide relief for only a few months. Even so, private lenders do seem to be getting more interested in finding creative ways to reduce principal or defer payments.

 Bank of America’s Rebecca Mairone, national servicing default executive, says, "We are very, very interested in making sure redefault rates are low so our customers can remain in their homes."

/kh