Loan Modifications: Will It Continue Despite The Poor Showing?

Designed to assist home owners that are struggling economically by modifying their loan payments to make their loans more affordable to them, the loan modification program was anticipated to help millions of people to save their homes.

It appears though that despite the initial forecasts, far fewer home owners actually qualify for the program than was expected. As a matter of fact, the number of those who actually qualify for the Home Affordable Modification Program (HAMP) is so low that few individuals are questioning whether the plan must be abolished.

In addition to those who do not qualify for HAMP, theres also a large number who do enter into the trial period only to default on the agreement, meaning that theyre forced to drop out. For many individuals, a loss of income or other hardship means which they cant afford to pay their mortgages even after the modification.

One thing that might improve the statistics tied to modifications is that there is presently a backlog of those who are being approved. Primarily, after an application has been accepted, the homeowner will enter into a trial period before full acceptance into the program. During this loan period, they are still showing as delinquent as opposed to being in modification meaning that there are still initial applications that have not cleared through the system yet. This trial period is three months but several home owners have been on trial for 6 months or more as the lenders struggle to clear the backlog. Once we see these lenders improve their processes to clear these backlogs then we might see HAMPs statistics improve. This backlog may be deterring some from applying to the program because being left in limbo for such a long time, without any guarantee of being accepted fully, could be extremely damaging to credit ratings.

One more issue which is being considered by administers of the program is the procedures that lenders use when dealing applications. Its thought that few lenders are miscalculating the incomes of several applicants and might also be putting them into their own modification programs when the government program is more suitable. There are efforts being made to clean this up, though, and a lot more documentation is being requested from home owners when they present their applications.

With the possibility of penalties being mooted for servicers who do make mistakes in the application process, it will seem as though the government is serious about getting the whole system cleaned up and running smoothly. With mistakes, miscalculations and even documentation going missing, it might just be a case of servicers providing their staff with better training to ensure that the complete procedure to become more effective and more home owners accepted into the modification program.

Early results indicate that home owners who do receive a permanent modification under the government program, the lower payment level might be affordable to them, with treasury data showing that just about 10 percentage of borrowers who had been in a modification for six months or longer were more than two payments behind. Despite it's problems figures like these surely bode well for the future of modifications.