Remember the promise of a loan modification?
In April of 2009, the Treasury Department officially launched their effort to help distressed families keep their home and avoid foreclosure. They recruited several loan servicers (JP Morgan Chase, Wells Fargo, Citigroup etc.) and offered $75,000,000,000 to the banks to pass along to homeowners in need. Click here to read the article from CNN.
In theory, the program was designed for distressed homeowners to contact lender’s modification counselors and build their case for a loan modification. Banks were instructed to offer modification resources on loans where the cost of foreclosure would be higher than the cost of modification.
For families that qualify:
• Interest rates can be lowered by the banks to bring the borrower’s monthly mortgage payment to no more than 38% of their pre-tax income.
• Loan amounts can be reduced by banks to bring the monthly mortgage payment down to the 38% of pre-tax income
• Additionally, the federal government would offer resources to lower the borrower’s interest rate to bring the payment down to 31% of pre-tax income
• $1000 per year is given to families that keep current with their modification program
In theory, this program is a fantastic solution for families in trouble. In practice, the program doesn’t seem to be working.
Where I work, the phone rings all day long with veteran families looking to take advantage of lowering their interest rate. Every day that passes the number of families that have fallen behind or will fall behind on their mortgage payment increases. Nearly 90% of the families we speak to are struggling to make their payment. We ask these families if they have spoken to their current lender in regards to a loan modification.
Most of the families I have spoken with have had the modification conversation with their lender, but few have succeeded; if any. They hear banker’s excuses such as, “We can only talk to you if you are more than 60 days late on your mortgage payment (a lot of good that does… isn’t this program supposed to keep people from being late on their payment).” Or, “Send in your paperwork to a phoneless team who will review your file within six months and we will decide if you qualify.” Or, the lenders make the process to apply so complex and drawn out that families give up in desperation while drowning in a sea of red tape. Or no one answers the loan modification phone at all. http://www.cnn.com/2009/LIVING/04/15/foreclosure.phones/
Shouldn’t the first question that is answered be, “Will the cost of the foreclosure outweigh the cost of the modification?” Can’t it be that simple? Can’t there be a two-week process, with a clear application and definition of items needed to be included with the application? Why are banks making it so difficult? This is the question no one can seem to answer or influence.
At the end of the day, families that really need modifications are not getting the help they need while Wall Street Bankers are padding their profits with government subsidies.