Loan Modification Only Delaying the Inevitable for Some Homeowners
Back at the beginning of the year, loan modification was hailed as the way to help troubled homeowners deal avoid foreclosure. Turns out that in many cases, loan modification only helps delay the inevitable. CNN Money reports on foreclosures:
Some 53% of borrowers with loans modified in the first three months of 2008 and 51% of those with loans modified in the second quarter could not keep up with payments within six months, according to U.S. Comptroller John Dugan, who spoke at a housing conference.
For many of those who took out subprime loans, the homes were so far beyond what they could actually afford, that even with loan modification, the loans cannot be kept up. Loan modifications were handled in a remarkably poor fashion: deferments masquerading as modification, tacking missed payments and interest to the end of the loan and other problems have reduced the effectiveness of many loan modification programs.
Some loan modifications merely extended the teaser mortgage rate by six to 12 months. Others put on an interest rate freeze that will last longer — but the results will be the same. Once interest rates are re-set, we’ll be right back at this point. Delaying the inevitable won’t help anyone in the long run. Well, except mortgage lenders that can squeeze a little more out of their borrowers before they fold.
Another problem with loan modification was that earlier this year concerns about unemployment had yet to surface, and the global financial crisis had yet to strike hard. As a result, even though some may have been able to afford the new payments, they no longer can, thanks to current states of joblessness (another Extreme Home Makeover house in foreclosure trouble illustrates this point). Rising unemployment as companies go down will only accelerate the foreclosures, no matter how much loan modification is practiced.
