Slow Start for Loan Modifications - Photo Credit: Phase.com
The Treasury Department reported in the second week of September that approximately 12 percent of eligible borrowers have begun trial modifications on their home mortgages. The $75 billion dollar federal program to help rework home loans into more manageable monthly payments started in the month of March. Things are off to a slow start, but banks may need more time to train and hire staff; if that’s the case, this first 6-month report may do little to paint a clear picture of what modifications may look like 6-months from now.
From March 2009 to August 2009, 360,165 borrowers received three month trial modifications to their home loans. If borrowers are able to keep their payment up-to-date for the three month trial period, mortgage lenders are supposed to stretch the loan modifications for a period of five years.
Since March, trial modifications for home loans were offered to about 15 percent or 571,354 of the borrowers eligible for modification, but not all have taken their lender’s offer. This could mean that lenders aren’t being aggressive enough with their modification offers or that the process is overwhelming.
Among the many lenders cooperating in loan modifications, the leaders include JPMorgan Chase who leads the industry with trial modifications on 25 percent of eligible mortgages (more than 227,000 as of August) that are delinquent by 60-days or more, and CitiMortgage has also started a good number of trial modifications with around 23 percent of eligible mortgages.
Those notable lenders that are trailing behind in loan modifications include recognizable names such as Wachovia with only 2 percent of eligible mortgages currently being modified, Bank of America with 7 percent and Wells Fargo with only 11 percent of eligible mortgages undergoing trial modifications. Each of these lenders is under the national 12 percent average.
There are more troubling numbers to accompany those mentioned above. There were foreclosure related filings reported on 358,471 properties nationwide in the month of August. That is an increase of around 18 percent from the numbers posted in August of 2008. These numbers were posted in a RealtyTrac report released in early September. In the month of August 2009, 1 in 357 homes nationwide received a foreclosure filing. Bank repossessions, scheduled auctions and default notices are included among those numbers.
While it appears the number of lenders helping with loan modifications is low, many lenders are defending their progress stating that there are many modifications that they are doing on their own that are not being included into the government’s numbers. They are also saying that they are increasing efforts and staff to help with the governments plan for loan modifications. The simple fact is that delinquencies and foreclosures are still occurring at alarming rates; a sustainable recovery will not happen if we don’t reduce the amount of foreclosures hitting the market.
See Also:
Home Affordable Modifications Checklist – Do you Qualify?
The Office of Homeownership Preservation – Citi
Homeownership Center – Chase
Loan Modification Program – Details on New Homes Section
Sources:
JP Morgan News Release on Mortgage Modifications
RealtyTrac Report on Foreclosure Activity in August
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Too bad that so little of the stimulus done so far was actually for housing. I hope they extend the first time buyer credit and come up with other ideas to get people buying these distressed homes!
Many lenders of loan modification has requirements that must be completed first. By the way can the mortgagee include all fees and corporate advances?
I just don’t understand how lenders don’t just dump a ton of resources and manpower into this. It seems they just don’t want to go along with these loan mods.
There was a dubious report in the Wall Street Journal today, saying that around half of all modified loans are again becoming delinquent. I’m surprised by this, but also know that not all loan modifications are particularly helpful. Banks often offer to refinance, and have been quick to lower monthly payments by using 40-year amortization, sometimes actually adding to the amount owed. The more attractive loan modifications keeps all other things equal but lowers the interest rate on the loan. I find it hard to believe that half the people would walk away from 4 percent 3-year fixed loans.
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@Mike – It’s expensive to hire and train a bunch of employees; I imagine they’re less worried because Uncle Sam is always around to help out with our money.
@San Diego Homes – I read a similar report a few months back – you’d think lenders wouldn’t waste the time and money on a modification if it’s not an effective one. People are way under on their loans and would rather walk-away then payback hundreds of thousands of dollars.
I agree with Tony. They need to make it easier for first time buyers to get onto the market. This will help the property market for sure.
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I think that the banks are not so interested in modifications home mortgages. They do more money on the old way.
That because the lenders are not concerned with helping individual, they are just concerned with getting their collecting their funds.