The Government Wants to Help you with Your Mortgage

Barack Obama and the rest of the federal government continues to roll out new initiatives designed proximally to help mortgagers in need, and ultimately to stimulate the ailing economy. At this point, pretty much everyone is eligible for help, regardless of what stage of the process they are at.
 
For those that already have a mortgage and are facing foreclosure, the government has pledged money to incentivize banks to grant loan modifications for qualifying mortgagers. “To be eligible, a homeowner must have a monthly mortgage payment larger than 31 percent of their gross income. The monthly payments of those who qualify are lowered to the 31 percent limit. Lenders can do this by reducing interest rates to as low as 2 percent, by extending the term of the loan to 40 years or by deferring principal.” Borrowers are then placed in a temporary program whereby they must make their reduced payments successfully for three months, after which points they see their loans permanently modified.
 
On the one hand, the Treasury Department is trying to make it easy for eligible borrowers to receive modifications: “About 100,000 homeowners across the country so far have been extended loan modification offers. ‘We are encouraging servicers to staff up, establishing a hotline for homeowners, looking for new tools to expedite this process, working with communities to get the word out about resources available to homeowners,’ ” declared the department’s spokesperson.
 
At the same time, those who have applied tell stories of long waits, lots of uncertainty, and probable rejection. There are two related reasons for this discrepancy. First, there is a lack of lender impetus to facilitate loan modifications: “Housing counselors say that while 15 lenders — including major ones like Bank of America, CitiMortgage, Chase and Wells Fargo & Co. are participating, many have yet to fully train people to process the applications. As a result, housing counselors say they often receive mixed signals, with different lenders offering different interpretations of the guidelines.”
 
Second, the mortgageholders (i.e. investors) have the ultimate say in whether a mortgage can be modified. In situations where the value of the mortgage exceeds the value of the home, investors are more willing to agree to modification, because a foreclosure would result in lower remuneration. In relatively healthy markets, however, investors are more reluctant, especially since all of the incentives are directed towards the banks.

Ultimately, “One thing is clear: Homeowners who have a HUD-approved housing counselor championing their cause are more likely to get a modification than those who try it on their own. Housing counselors say they often understand the program’s guidelines better than the people answering phones for lenders, so they know how to pursue a case aggressively.”
 
Stay tuned for tomorrow’s post, where I will outline the homebuyer tax credits and the implications of the proposed Consumer Financial Protection Agency…