There's been a lot of speculation about President Obama's new plan of additional measures to reduce the increasing number of foreclosure casualties. His improved plan is supposed to be announced in more detail soon. It is expected to include more government subsidies for reducing a borrower's interest rate, which a lender would have to match with their own money. This could reduce payments by several hundred dollars a month.
While some 650,000 people have had their mortgage payments temporarily adjusted, only a fraction of these, around 1.26% have received permanent modifications after three months. Exactly what kind of pressure Mr. Obama could bring to bear remains unclear.
It seems like it's been a struggle to receive a permanent modification, there has been pressure on banks to provide temporary modifications but who will receive permanent help will be the real test. Currently borrowers who receive permanent modifications can keep making the lower payment for five years.
By the end of 2008, slightly more than 9 percent of all mortgages in the United States were either delinquent or in foreclosure, according to the Mortgage Bankers Association. The number of loans in foreclosure hit a new record of 2.3 million last year, more than double the volume in 2006, and industry analysts estimate that it will hit at least 3 million in 2009 in the absence of a government rescue.
One of the biggest difficulties in modifying mortgages has been the fact that most loans were bundled into pools, which were then resold as mortgage-backed securities. Mortgage servicers, third-party companies, collect the monthly payments and take action against delinquent borrowers. These companies remain nervous that bondholders will sue them if they make overly generous concessions.
Mr. Obama's plan risks angering vast numbers of homeowners, both those at risk of losing their homes and the tens of millions more who are current on their payments and bitterly resent the government bailing out those who borrowed more than they could afford.
Even though there are political hazards of bailing out people who made bad decisions, many economists say the government needs to attack foreclosures if it wants to turn around the economy.
The Obama Administration has already taken several steps to make the transition from trial to permanent modification easier and more transparent by:
* Extending the period for trial modifications started on or before September 1st to give homeowners more time to submit required information;
* Streamlining the application process to minimize paperwork and simplify the submission process; meeting regularly with servicers to identify necessary improvement to borrower outreach and responsiveness;
* Developing operational metrics to hold servicers accountable for their performance, which will soon be reported publicly.
If you live in Southern California I also offer a Free Consultation that can help you make the best financial decisions so that you are fully informed of all the possibilities.
For stats on how the major loan servicers are converting their temporary loan modifications to permanent please refer to http://money.cnn.com/2009/11/28/news/economy/Obama_mortgage_announcement/index.htm