I just need to vent today. I am really frustrated with some of the articles I am seeing in the news media.
On May 26, there was an article in the Wall Street Journal. The title of it was “Mortgage Modifying Fails to Halt Defaults.” The article commented on a Fitch Ratings report which is scheduled to be released during the week.
The Fitch report takes a look at loan modifications. Its primary focus was subprime mortgages which were modified. The report projected that 65 to 75% of those loans which were modified will become 60 days or more delinquent within 12 months after the loan is modified. That means that the people will be facing foreclosure again.
The article went on to say that although loan modifications are considered as the way people facing foreclosure can save their homes, they are not working. Public pressure was causing mortgage companies to modify mortgages for all types of people including those who most likely will default again.
The average person who reads this article and does no further research will naturally assume that loan modifications are a total failure. They will never find out the reason there has been such a high rate of people facing foreclosure again after their loans were modified.
The article talks about subprime mortgages. These are not covered by the Making Home Affordable Modification Program. When they are modified, there are no formal guidelines which the mortgage companies have to follow. Many of the people facing foreclosure contacted their mortgage companies on their own. They never sought help from a lawyer or an expert in the field. They just assumed that their mortgage company would treat them fairly.
When a person facing foreclosure on one of these mortgages contacts their mortgage company, the company’s normal course of action has been to take the amount they are behind on their mortgage and any penalties and add the total to the balance owed on the mortgage. Their objective then has been to get person caught up on their payments as quickly as possible. They would increase the person’s monthly payment by a specified amount over the course of the number of months necessary to accomplish this.
For those months the monthly payment was higher than the regular payment. The person was expected to find a way to make the payment. After they paid their shortage their payment would revert back to what it was.
What’s wrong with that picture?
The person did not have enough money to make their original monthly payment. That’s the reason they fell behind. Where were they supposed to get the money to make a larger payment? Even if they found a way to make that larger payment and got caught up, how could they continue to make the regular payment when they couldn’t make it before?
The other challenge on these subprime mortgages was that the interest rates normally were very high. Another way that many of these mortgages were modified was that the interest rate and the monthly payment were reduced. However, the mortgage company never determined whether the person could make the lower payment on a consistent basis.
It wasn’t until the Making Home Affordable Modification Program was started in March of 2009 that a serious way to modify mortgages and reduce mortgage payments that people could consistently make was introduced. This program is still too new to determine how many people who have their mortgage payments lowered will fall behind again in the future.
In the last several weeks I have seen numerous articles like this one. The writers just are not doing enough research to determine the reason loan modifications have not been working. If they did, they may ask for changes which will improve the programs and actually help more people facing foreclosure to save their homes.
If you are facing foreclosure, don’t think that a loan modification will not work for you. Get the help of a lawyer or an expert in the field and let them guide you in the steps you need to take to save your home.
Much Success,
Mark Elkins
