Early December had the Obama administration leaning on banks and loan-servicing companies try to have them amend mortgages reaching numbers into the hundreds of thousands. The government’s goal is to apply enough pressure on lenders to get them to make borrowers mortgages affordable through loan modifications usually by reducing mortgage payments without lowering the principle amount owed.
The Treasury has threatened public embarrassment and possible fines for lenders that are dragging their feet.
While the frustration shown by the Treasury may have validity, they must back up these accusations against lenders with data showing that the banks and loan-servicing companies are indeed dragging their feet. The lack of such damaging evidence could show just how frustrated and rattled the administration actually is.
Most of this anger is projected at lenders because the core of the home owner bailout program – The Home Affordable Modification Program – could very well fail if there is a lack of support from banks and loan-servicing companies.
If this was to happen, house prices would most likely slide more due to the large number of foreclosures that would flood the market.
The Home Affordable Modification Program has a chance of working if a majority of the mortgages that are in a trial period modification become permanent.
The re-default rates on modified home loans must also remain low once they become permanent.
The Treasury has predicted that 375,000 of the borrowers who have been part of the trial modifications will most likely enter into permanent loan modifications before the end of the year. That is 58% of the 650,000 who had begun trial modifications (as of late Nov. 2009).
While those numbers will be impressive if reached, the Home Affordable Modification Program still has its flaws. The major flaw with the program is that its goal is to lower homeowner’s mortgage payments without incurring large losses for the banks or demanding more cash out of taxpayers.
If the program does manage to come up with the figures it’s aiming for, it could still end up with a sizable number of underwater mortgage loans stuck in the market.
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