Do Loan Modifications Really Work Permanently?
After the real estate crisis hit America, the majority of homeowners are now facing foreclosures and the possibility of losing their homes. Most homeowners have resorted to either refinancing or applying for a loan modification program. But the more popular way by which homeowners sort out their mortgage problem is through the loan modification program, as this is the ideal response the government recommends to control the surge of upcoming cases of foreclosure.
Yet, the most popular question revolving around this issue currently is this- Do loan modifications really work permanently for homeowners experiencing the hardship of real estate crisis? Or is this finance scheme only delaying the inevitable foreclosure for homeowners? Should the homeowners opt for a short sale instead of biting into this loan modification program?
We can answer whether loan modifications really work permanently for homeowners by defining what is loan modification and what is the big picture in real estate concerning loan modification.
What is Loan Modification?
Loan modification can be accessed by troubled homeowners either through a private company or through a government loan modification program. Homeowners can go online and search for loan modification specialists who can manage and perform the renegotiation of loan terms. Obtaining the services of loan modification specialists comes with a fee.
Meanwhile, the government-sponsored loan modification program is mainly handled by President Obama’s campaign dubbed as “Making Home Affordable”. This loan modification initiative provides cash subsidies to mortgage lenders and loan services that help modify at-risk mortgage loans. Working side by side the Making Home Affordable program is the Home Affordable Modification Program or HAMP.
What the Recent Studies Says About the Effectiveness of Loan Modification
As mentioned earlier, loan modification have been the buzz word and the most popular resort used by homeowners to avoid getting their homes foreclosed. Yet, do loan modifications really work permanently? Is loan modification conducive and realistic in terms of its relation to the present economic state of the country?
A recent study by real estate specialists reveal that around 98% of homeowners who opted to take out this loan modification program find themselves in the same old hole as before- failing to do their payments, within just nine months. This is generally true regardless if a private lender or government program through HAMP assisted them in their loan modification.
The heart of the study says that in spite of the intention of these private lenders and government programs to help homeowners during times of economic difficulty through loan modification, the initiative’s application still appears to be a complete failure.
Looking closely at the government’s loan modification program, the source of problem of this utter failure may be stemmed from the structure of the Home Affordable Modification Program or HAMP. During the probation period that ran for the first three months of a mortgage rewrite as structured by HAMP, it was reported that only a few homeowners were able to pass this trial period. To show the statistics of this reality, out of the 650,000 borrowers who have been put to trial, as of September in the year 2009, only a handful, consisting of less than 2,000 have been permanently saved from foreclosure through HAMP.
Factors that Make Loan Modification Fail to Work Permanently
The major reason as to why loan modification is not working permanently is for the reason that the economy is weak. Under the government-sponsored program of loan modification, it has set the modification loan payment not to exceed 31% of a household income. But with unemployment rate rising, the mortgage loan proves to be not the primary problem, but the lack of financial resources to pay the modification loan payment.
If a homeowner holds no job and still decides to hold on to his house rather than walking away and settling for a short sale, the inevitable foreclosure is bound to happen. If a homeowner who is out-of-work is known to be eligible for HAMP, the government still cannot approve of HAMP since this type of loan modification program does not apply to homeowners who have no steady stream of income.
Failure to discern that it is better to walk away. It used to be a norm during past decades for homeowners to simply walk away when they realize that their mortgage loan is larger than their property’s market value. HAMP’s loan modification program places the lowest priority to helping homeowners reduce their debts.
Loan modification may be the buzz word during these difficult times in real estate crisis, but do loan modifications really work permanently? The studies and reports regarding this issue points to one thing. Loan modification may be an alternative solution to solve problems regarding mortgage, but these programs are not the ultimate answer to permanently solve the financial problems that most homeowners are facing at present.
It is then up to struggling homeowners to rethink this option and consider facing what may be better deals that may be both available and tailor-made to solve their unique problems. Since a homeowner may potentially lose his home in the process, why not act now and settle for a short sale instead. This is considered to be a more intelligent resolution to a homeowner’s problem.
Do Loan Modifications Really Work 2011