Mortgage Modifications Increasing But Many May Be Strangled by Paperwork

Posted by  on Apr 01, 2010

Best Mortgage Rates Not Enough for Everyone

American home owners still have access to something very close to the lowest mortgage rates on record. And most of those who are currently paying more than they need can find some amazing home refinance rates.

In fact, three million home refinance deals have been closed already this year. And the U.S. Treasury calculates that each of the home owners who benefited from these is saving on average roughly $150 a month.

If those figures tempt you, you can compare refinance rates here.

But what happens if your mortgage loan problems are such that refinancing is no longer an option? What happens if your home is underwater, or if your credit score has been so badly affected by late payments or other difficulties that no new lender wants to know you?

Mortgage Loan Modification

Well, if you're 60 days or more delinquent, or are in danger of defaulting imminently, then you can apply for help under the government's mortgage loan modification scheme, which is called the Making Home Affordable program. Under this, the government in effect pays your mortgage lender to cut you some slack.

And that means that your monthly mortgage repayments can be reduced to an affordable level.

Millions Could Be Helped

According to the U.S. Treasury, the Making Home Affordable program has the "goal of offering 3-4 million homeowners lower mortgage payments through a modification over three years." And, on Tuesday, it released figures showing that 650,994 delinquent borrowers are already receiving help. That's more than 20% of those who are eligible.

Which allowed Treasury Assistant Secretary Michael S. Barr to boast:

As this report demonstrates, struggling homeowners in every state now benefit from reduced monthly mortgage payments and have an opportunity to stay in their homes. The program is having a pronounced impact in areas particularly hard hit by the housing crisis. We're reaching borrowers at a larger scale than any other modification program to date, but there is still much more work to be done.

A Program with Problems

Mr. Barr was correct in every respect. Including the bit where he admitted that there is still much more work to be done. Because, although 650,000 borrowers have been given trial modifications, many fewer had had those modifications made permanent.

For example, according to the Wall Street Journal, out of 39,000 participants in Morgan Stanley's Saxon Mortgage Services' mortgage loan modification scheme only about 500 have received completed modifications.

The problem? The large number of documents that borrowers have to submit to their lenders in order to prove their eligibility under the program.

And that's causing many to urge the government to lighten the bureaucratic burden on troubled borrowers.


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