| The government was to have saved us all from the | | | | thousands of dollars to the banks. |
| housing crisis. They were going to stabilize high prices, | | | | Another reason that loan modifications fail so often is |
| make housing affordable for low income borrowers, | | | | that homeowners do not work out beneficial ones with |
| and help foreclosure victims stay in their homes. Nearly | | | | their lenders. In fact, most are offered repayment plans |
| half a dozen plans were put into place to make sure | | | | instead of true modifications, which can actually |
| that borrowers could not only avoid foreclosure but | | | | increase the monthly payment while not reducing the |
| keep on borrowing money to purchase or refinance | | | | interest rate or principal due on the loan at all. It is no |
| properties. What went wrong? | | | | wonder that borrowers facing financial hardships fall |
| According to a new report by Fitch Ratings, between | | | | behind on more expensive mortgage payments. |
| 65% and 75% of modified subprime mortgages may | | | | In an economic climate defined by rising unemployment |
| redefault within twelve months of the modification | | | | and underemployment, even families that originally |
| agreement. This is despite efforts by the government | | | | qualify for a modification agreement may find that the |
| and the banks and the servicing companies to provide | | | | mortgage is unaffordable after a layoff or cutback in |
| assistance (some of it by taxpayers). But what is the | | | | hours. While one foreclosure may motivate borrowers |
| real problem with these modification plans -- why do | | | | to try to save their homes any way possible, a second |
| homeowners fall behind again so soon? | | | | one may convince them that renting is a better option |
| One of the main reasons, of course, is that the | | | | after all. |
| properties whose loans are modified are still worth less | | | | The fact that the government has been appropriating |
| than the total amount owed on the mortgage. | | | | so much money to propping up failed financial |
| Homeowners who get a reduced payment on a | | | | institutions and other corporations means that fewer |
| house that they still owe far more on than it is worth | | | | resources can be used by successful companies to |
| still have little incentive to reward the banks with so | | | | hire or expand business. And the $12 trillion in new |
| much money for homes they feel they were tricked | | | | money created by the Federal Reserve has ensured |
| by the mortgage and real estate professionals into | | | | that prices for consumer goods are remaining stable |
| purchasing in the first place. | | | | or rising, not falling as they should during a depression. |
| Reductions of principal balances are exceedingly rare | | | | What homeowners' goal should be when negotiating |
| for lenders when working with homeowners. The | | | | for a modification is a mutually beneficial plan that is |
| lenders do not want to write down the value of a | | | | both affordable and a reasonable price for the |
| significant number of loans as well as reduce | | | | property. While this is often easier said than done, with |
| payments for the borrowers, because this will | | | | the right amount of persistence and advice (although |
| drastically reduce the value of the mortgage on the | | | | preferably not from a failed government plan's |
| bank's balance sheets. But many homeowners seem | | | | bureaucrats), it is possible to end up with a modification |
| to be choosing foreclosure over paying hundreds of | | | | without a 75% chance of being defaulted on. |