Photo of monopoly character.
Loan modifications are showing more defaults than ever. CC by purplejavatroll/flickr

A federal loan modification program is likely to be less successful than a bank loan modification is. Qualified individuals can get a mortgage modification through a government program. It has not been that big a success. Banks, of their own volition, will extend modification programs to customers. This is not really a victory for the Libertarian crowd though. If a person gets a private lender modification, they are twice as likely to default than in the government program.

More bank loan modifications done than through HAMP

The Home Affordable Modification Program was part of the stimulus programs of a couple years ago. Also referred to as HAMP, it has a simple enough premise. A homeowner that gets in trouble can apply for a loan modification that starts with the federal government. The government works in conjunction with the homeowner’s lender. If certain criteria are met, they receive a trial modification on the bank loan for their home. Their loan gets permanently modified if they successfully get through the trial. Unfortunately, less than 45 percent of all permanent modifications stick. That doesn’t mean all of them end up in foreclosure. According to CNN, about 44.5 percent of all people who default on the federal modification get a modification from their bank anyway. There are 2 bank modifications made for every HAMP modification.

Bank mods have higher defaults

Bank modifications also have higher rates of default. Fewer than half of HAMP applicants accepted complete the trial phase. Of those, 11 percent default again. On the modifications made by lenders, 22 percent default. However, there is a reason for that. Usually, HAMP mods reduce monthly payments by $608. Bank modifications don’t do as well. The average bank mod lowers payments by $307. That may be enough for some people. For homeowners already stretched to the limit, they will still probably be running for payday loans.

Employment has to improve before housing

Until employment reaches pre-recession levels again, the real estate industry is likely to make only modest improvements, if any. That said, all is not lost. Signs of life are beginning to show. However, full recovery will take awhile. All signs point to an extended recovery period.



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