More Borrowers Falling Out Of Govt Modification Program

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May 17^th, 2010

 

The number of borrowers dropping out of the government’s home modification program are equaling in numbers with those who received permanent modifications.

 

According to the Treasury Department, more than 299,000 borrowers received permanent loan modifications in April 2010. This number represents 25% of the 1.2 million applicants who enrolled since the launch of the government’s program in March 2009. Majority of the borrowers on the program are paying an average of $516 less in monthly mortgage payments.

 

Reports indicated that the number of borrowers who began the 3-month trial modification who failed to be converted into the permanent phase, spiked violently in April 2010.

 

To be converted into a permanent modification, mortgage borrowers must make 3 consistent on-time monthly payments. It is estimated that 277,000 borrowers or 23% of the total registered for the trial phase have fallen out of the program. This is a significant increase from 155,000 fallen borrowers from the previous month of March 2010.

 

Housing experts said that a lot of borrowers are on the edge failing to convert to permanent modifications as they get tangled in a web of bureaucracy.

 

Critics to the program say that the program is hardly fixing the foreclosure problem and instead prolonging the unavoidable surge of more foreclosures to come. On the other hand, officials believe that the program is helping to turn around the real estate market.

 

Phyllis Caldwell, chief of Treasury’s homeownership preservation office said that the number of borrowers obtaining relief via a loan modification continue to increase. The modification program was built to lower borrowers’ monthly rates to as low as 2% for 5 years and stretching the loan terms for up to 40 years. As incentives, mortgage companies receive up to $75 billion paid for by taxpayers in efforts to reduce borrowers’ monthly payments.

 

Problems To The Program

 

One of the major problems in the initial stages of the government’s modification program permitted borrowers to state their income in verbally. They were allowed to prove their income at a later point in time. This problem clogged up the pipeline as many borrowers did not provide the required documents as proof of income. In addition, many applicants were repeatedly requested for missing documents that were already sent in.

 

Fixing The Problem of Income Verification

 

Treasury officials have instructed lenders to adhere to a new system of verification. Beginning June 1^st 2010, applicants are required to submit 2 recent pay stubs in the beginning process. To curb any fraudulent activity, borrowers will have to provide consent to the Internal Revenue Service (IRS) in submitting their most recent tax returns directly. Borrowers will not be required to submit these documents themselves.

 

Permanently Modified Borrowers Who Have Dropped Out

 

Out of those who have completed the program, 3,744 borrowers representing 1.3 %, have fallen out. This is a rise from 2,900 borrowers from the previous month of March 2010. There is a likely chance that many out of this batch, defaulted on their modified mortgages while others may have refinanced or sold their homes through a short-sale arrangement.   

 

Changes And Improvements To Short-Sales

 

In efforts to promote short-sales, the administration is offering $3,000 to cover moving expenses for borrowers who go through a short-sale transaction or return the deed of the property back to the lender.   

In reference to improving short-sale transactions, mortgage lenders will now have to assign their minimum bid before the home is listed for sale. If the buyer’s offer is above the minimum bid, the lender must go through with the short-sale. This is a major change from previous practice. In general, lenders normally don’t calculate or figure out how much they are willing to accept until they receive an offer. As a negative consequence, this causes prolonged delays.

  

For more information about Short Sales, learn more about the government’s new short-sale program called HAFA

 

 

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