Streamlined Mortgage Loan Modifications on the Way
With Alt-A loans heading into the same realm of foreclosure as the subprime loans before them, things are increasingly looking grim for mortgage lenders. Indeed, many people are deciding that trying to save their homes are too much trouble, and simply walking away. With all of these issues coming into play, it is no surprise that mortgage lenders are — somewhat reluctantly — starting to do what they can to keep people in their homes. And the process may be helped along by the government’s latest efforts at housing market rescue: streamlined mortgage loan modifications.
Are streamlined mortgage loan modifications the answer?
In order to try and make the process of mortgage loan modifications easier (and quicker) the government is introducing a “streamlined” process through Fannie Mae and Freddie Mac. The hope is that by creating a process that is relatively simple, as well as one that ensures that borrowers can make their mortgage payments, foreclosures can be averted.
The plan centers around efforts to change mortgage terms so that they result in lower payments. Calculated Risk points this out about the plan, however:
Note that this does not include principal reduction as a solution to create an affordable payment, and is limited to: “extending the term, reducing the interest rate, and forbearing interest”.
Obviously, the idea is more in line with assuring mortgage lenders that they will still make plenty of money. The idea — much like the proposed mortgage rate freeze late last year — is to make it possible for borrowers to keep paying lenders. One of the biggest features of this plan seems to be mortgage term extension. Refinancing a home that has 25 years left on the mortgage so that the borrower is going to be making for 40 years is actually very helpful to mortgage lenders. They recover the principal and — even if the mortgage interest rates are lowered — they get more money in interest payments.
Honestly, I’m not entirely sure why mortgage lenders haven’t been doing this all along.
