Is the Government Foreclosure Prevention Plan Failing?
27% of Payments Are Late
The Obama Administration’s Home Affordable Modification Plan which is a foreclosure prevention program which has been extended to 650,000 American homeowners now reports that 27% of payments are late. A U.S. Treasury Department survey of mortgage servicers found that “over 73% of borrowers are current in their trial plan payments,” Assistant Treasury Secretary Herbert Allison told a congressional oversight panel.
I suppose if you’re a glass half full type, the program is succeeding if such a high number of homeowners are able to meet their obligations, but if you’re a glass half empty type, signs point to failure with such a high default rate. The big question is, will the loan modification program improve or decline?
Mortgage Broker Justin McHood of VanDyk Mortgage explained the defaults by saying, “if you were one of the people who received a loan modification (either temporary or permanent) it is safe to assume that you had some type of hardship to receive the modification. So logically, if you become late after receiving a modification of some type, one of two things is happening, 1. your hardship got worse or 2. you made the decision to simply quit paying.”
What will improve mortgage default rates overall?
McHood said, “I suspect that although the unemployment is hovering in the low double-digits (recognizing that it is possible that the “real” unemployment may be higher) the real reason that people are re-defaulting is due to the fact that they have made the decision to “walk away” in some form due to a negative equity position in the home. And until that is fixed, I suspect that you will see more short sales and foreclosures and less successful loan modifications that do not default.”
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This article published on Monday, December 7th, 2009 at 12:02 am | Contact the editor
Topics: Economy, News, Real Estate
About this Columnist (Full Profile)
AGBeat Editor-in-Chief: Lani, named one of Real Estate’s 100 Most Influential, as well as 12 Most Influential Women in Real Estate, is a business writer hailing from the great state of Texas in the city of Austin. As a digital native, Lani is immersed not only in advanced technologies and new media, but is also a stats nerd often burried in piles of reports. Lani is a proven leader, thoughtful speaker, and vested partner at AGBeat.
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Benn Rosales
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Lani – Wow, it’s great to hear that 73% are doing well, but that leaves a whopping 27% that aren’t. I’m surprised the numbers are that high and I have to wonder if Justin McHood isn’t right on the money with the idea of some people just “walking away.” People are tired of trying to fight an uphill battle with their homes I’m sure. The other problem that I see (and have talked about before on blogs) is that I think the stigma of foreclosure isn’t what it used to be. Now granted, no one enjoys a foreclosure, but I think people are finding them easier to swallow than they used to. Years ago “foreclosure” was a harsh “F” word. Although it still isn’t a joyous occasion, I don’t think it’s so much of a bad word.
I’d also suggest that there might be an additional reason that people are defaulting: they took a loan modification that didn’t meet their needs, because what other choice did they have. A loan modification only works if you can afford the new terms. When face with foreclosure or a loan modification, which would you take? You’d take the modification, even if you knew you couldn’t afford that – at least it would keep the wolves at bay for a little while as you try and figure out how to pay the mortgage that is now lower, but still out of your range.
I think if you look at this from the standpoint that 100% of these loans were in default before modification (or they would have had no reason to be modified) a 73% success rate is nothing to sneeze at! And that from an agent who is not a big Obama supporter…so it hurts to say it, but this might actually be working on the plus side.