Are Loan Modifications Effective?
A common argument against loan modifications is that they only postpone the inevitable
. The conclusion is that people who modify their loans will ultimately default anyway and lose their homes to foreclosure. There are countless examples that give weight to this argument; however, reasons for the failure of so many loan modification attempts need to be considered. They may not be as problematic as the statistics seem to indicate.
Much criticism has been aimed at the federal government and at lenders as many loan modifications have been allowed to proceed without verification of the financial viability of applicants. The criticism of the federal government is with good reason. In adherence to federal government mandates, lenders have wasted an abundance of time and resources in failed attempts to process modifications granted to unqualified applicants.
There is good news on this front. In April 2010, the US. Treasury instituted new rules in reference to the government's Home Affordable Modification Program (HAMP). Applicants are now required to provide documented proof of their income and go through a thorough underwriting process before being approved. Many loan modification attempts doomed to failure can now be avoided. This will result in huge time savings and increased efficiency in the processing of modifications, and will encourage a greater number of qualified individuals to apply.
With the system being streamlined, more principal write-downs (the forgiving of a portion of the principal loan balance) and significant payment reductions are now finding their way into the mainstream loan modification programs. This has and will continue to increase the success rate. According to the State Foreclosure Prevention Working Group (SFPWG), today's loan modifications are "40 to 50 percent less likely to be seriously delinquent six months after modification than loans modified at the same time in 2008."
To conclude, loan modifications are effective and many people should consider applying rather than giving up and sliding into foreclosure. It should be noted, however, that prospective applicants need to be prudent in seeking to modify their loans. Many people have paid thousands of dollars to "loan modification companies" and yet have received little or no help. In addition to the many legitimate attorneys and financial experts who can help with the process, there are also some solid do it yourself programs available. Such programs require some time and work, but are very inexpensive and well worth the effort.
Are Loan Modifications Effective?
By: Timothy Backstrom
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