Why Loan Modification is Not Saving Homeowners
Mortgage loan modification is the process of intentionally reworking the original terms of a mortgage loan to make it easier for the homeowner to manage it, make payments on time, and ultimately avoid foreclosure. Millions of homeowners who now face foreclosure hope for a solution to the dilemma through doing a loan modification and reworking a loan to make it more affordable – especially with the adversity of a bad economy and many layoffs and job losses. But the fact is that a very small percentage of successful loan modifications are happening – compared to an overwhelming number of tragic foreclosures.
That’s mainly because before loans can be modified – because a mortgage is a legal contract – the lender has to get involved with the borrower in a proactive way. But lenders are now backlogged with loan modification requests, and at a time when they need to dedicate large numbers of people to this effort most banks and other lenders are cutting back on their staff numbers. They have less people but more work, in other words, and loan modifications are getting put on the back burner.
Ways that loans are modified include several repayment plans. The lender can agree to extend the length of the loan in order to make the average monthly payment smaller. Lenders can also offer a lower interest rate, or even forgive a portion of the principal balance owed on the loan. But all of these approaches take time, and while lenders procrastinate and drag their feet, many homes that are good candidates for a loan modification cure end up sold at foreclosure auctions.
Congress has tried to apply pressure to encourage lenders to step up the pace of their loan modification efforts. But so far the business of reworking a loan to save a homeowner or help stem the tide of foreclosures that are hurting the national economy seems to be slower than molasses. Mortgage loans remain a burden for homeowners who want to try loan modification as an alternative to foreclosure, and while they wait for answers from banker and lenders the potential remedy remains just out of reach.
So generally speaking, loan modification isn’t working, not because it is not a good plan because those who made the loans – big banks – do not view loan modification as a high enough priority on their “to do” list.
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