The main focus of the new Making Home Affordable Modification Program is to bring the monthly mortgage payment down to a level that the person facing foreclosure can make the payment every month and save their home.
Lowering a monthly mortgage payment and modifying a mortgage have been around for quite awhile. At the end of 2008 some statistics came out which questioned how successful loan modifications actually are.
These statistics showed that in over 50% of the cases where mortgages were modified during the first quarter of 2008 the people fell behind on their mortgages within 6 months and were facing foreclosure again. Yes, in over 50% of the cases the loan modifications did not work.
There were six reasons for this:
Many people had overextended themselves originally. They had just purchased a more expensive home than they could afford.
They owed much more on their mortgage than their home was worth. As the months went by the values of their homes continued to drop. They got discouraged and felt that there was no reason for them to continue to try to save their home.
Many people had a lot of other debt. Their car payments were high and they had quite a bit charged on credit cards. Trying to get out from under their debt load was just too much for them.
Some people just felt that even with the modification they could not overcome their financial challenges. If they fell behind on their mortgage payments again, their mortgage companies just might modify their mortgage payments further and reduce their mortgage payments more.
In some instances mortgages were modified. However, the monthly payments were increased. If a person could not make the original mortgage payment, how could they make the new higher payment?
People lost their employment or lost the new jobs that they had gotten. They just didn’t have the income to make their monthly mortgage payments.
I am sure that if you are facing foreclosure your heart dropped when you saw that over 50% of the time where loan modifications were made the people fell behind on their mortgage payments within six months. Let me just say that things are a little different now.
The guidelines in the Making Home Affordable Modification Program address many of the issues raised. The mortgage payment is reduced to 31% of a person’s income. That is substantially lower than what a payment was reduced to in previous modifications.
Never will a person’s new payment be higher than their original payment. Right from the start it is made clear that if people fall behind and don’t make their mortgage payments on time, they will be taken out of the program. There are no second chances.
True – with the declining value of homes people may owe more on their mortgages than their homes are worth. The Federal government is looking at other ways to correct this.
In the Making Home Affordable Modification Program, each person’s entire debt load is looked at. If it is over 55% of their gross income, they are required to go to financial counseling.
I recommend that anyone facing foreclosure get help from a lawyer or an expert who specializes in loan modifications and helping people save their homes. The reason is that they are going to look at the person’s entire financial situation not just their monthly mortgage payment.
I also suggest that anyone facing foreclosure get ongoing emotional support from their church, a non-profit organization or skilled counselors. They will be much better equipped to get through the crisis they face.
Much Success,
Mark Elkins
