Loan Modifications: The big promise / the even bigger disappointment

HAMP Loan Modifications are a prime example of promises broken.

When HAMP was created in 2009, it was expected to help up to 4 million homeowners avoid foreclosure within the first several months. It has fallen far short of expectations.

Meanwhile, from 2007 through mid-2016, more than 18 million homes in the U.S. were foreclosed upon.

Lenders servicing loans owned or guaranteed by Fannie Mae or Freddie Mac are required to participate in the HAMP program. However, the program has been plagued by servicer non-compliance and complete lack of enforcement.

The government promises a financial incentive for servicers who assist homeowners with loan modifications. However, the financial incentives that encourage them to pursue foreclosure are often more appealing.

In addition, HAMP only requires modification of loans which meet the net present value test. This test determines whether the modification will or will not save the investor’s money. If they determine that foreclosure is more profitable, the permanent loan modification will not be granted.

But they take their time in making this determination.

As a result, homeowners who hope to save their homes through a loan modification are often strung along for years, submitting and re-submitting documents, then sometimes being granted a trial modification. All too often, months of making trial modification payments result in a final verdict of “no,” and the house is taken in foreclosure.

Sadly, lenders know from the outset which modifications will be turned down. It’s a simple matter of plugging the numbers into a computer program. We have that program in our office and can tell homeowners within minutes whether pursuing a loan modification is worthwhile.

Private loan modifications report higher numbers, with more than 4.5 million loans modified over the same period of time. Called proprietary loan modifications, these are “in-house” plans that can vary greatly from one situation to the next. Some have adjustable terms that can increase payments in the future. Others have profit sharing terms that bring immediate relief and promise repayment to the bank if there’s a profit on an eventual sale.

Principal reductions are not usually the reality.

Statistics show that principal was reduced in only 17.1% of all loan modifications. In 77.2% the interest rate was reduced, while other modifications simply extended the terms of the loan. One woman reported a less than 10% drop in her payment amount – but an extension from 23 years to 40 years left on her loan.

In more than 10% of the modifications, the monthly payment was not reduced. Actual reductions in monthly payments ranged from zero to as much as 35%.


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This site provides information about real estate, law, income taxes and credit scores as relates to borrowers in distress, short sales and similar situations. The site is designed to help users safely cope with their own needs. Information is not the same as advice — the application of law or regulations to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer, tax adviser or other specialist if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation. The models in photographs accompanying the testimonials on this website are used for illustrative purposes and are not a personal endorsement.