New Modification Program Unveiled
Despite repeated efforts to help struggling homeowners, the Administration has announced new, aggressive steps designed to help as many as 4 million delinquent homeowners. The new $75 billion loan modification program has new incentives for borrowers as well as for lenders.
Previous modification plans have not met with success. Previously, an applicant for modification entered into a trial period to assure the lender that the borrower could meet the modification terms. Amazingly, only 5% of Freddie Mac loans were converted to permanent modifications. On a broader scale, as of September 1, 2009, only 1.26% of all trial modifications were made permanent after three months.
In light of the present rate of foreclosures, the modification conversion is surprising. The number of loans in foreclosure or at least one month in arrears exceeded 14% in the third quarter 2009. Banks are under pressure to entertain and permanently convert loans.
A scale of incentives, including direct mortgage reductions, and annual initiatives are expected to raise interest from lenders and borrowers alike. As of November 2009, only 650,000 Americans have received temporary modifications.
The administration has recently taken more aggressive steps to assist homeowners achieve a temporary modification while completing documentation to apply for permanent adjustments. The paperwork process is cumbersome. The administration has lessened the documentation requirements and has even hired independent firms to go door-to-door to assist troubled homeowners.
To qualify for the modification program, an applicant must have a mortgage of less than $729,750 and must show monthly payments above 31% of their pre-tax income. It is best to begin the process before entering default status. Citigroup has just 1800 borrowers who have converted their temporary modification program to a permanent plan. The Citigroup service has 89,000 applicants in temporary status.
Lenders like Citigroup and Chase have retained outside services to attempt to stave off foreclosures. It seems that many homeowners do not know where to turn and choose to ignore the pending foreclosure actions. Help is out there!