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HOME AFFORDABLE MORTGAGE PROGRAM WOES - Can Loan Modification Process Be Effectively Streamlined?


Going back not more than 4 years or so on the North Side of Chicago, strong, annual, unabated appreciation for homes and condos seemed pretty automatic.  Even in neighborhoods on the outskirts of rapid development or vintage rehab, a minimum 3% annual appreciation could be counted on for over a decade.

Before the mid-1990's, and as far back as most in Chicago remember, meteoric appreciation was never a given, but stability in home prices was taken for granted across the years..

Not so today, in modest Chicago Neighborhoods such as Rogers Park, on the Far North Side along Lake Michigan, where rapid construction of new row house units and renovation of 75-year-old vintage homes and apartment buildings into luxury residences seems to have over-saturated the market.  According to some local estimates, more than 50% of these recently-built or improved properties. encumbered by high-leverage mortgage loans, have their left their owners underwater. 

Today, the negative difference between market value and outstanding loan balance exceeds tens of thousands of dollars!

What options do these distressed homeowners have?

Some have investigated taking advantage of the Fed's Home Affordable Mortgage Program.  The program, introduced in early 2009 through the U.S. Treasury, is geared to reducing interest rates, and resulting monthly payments, for qualified homeowners in trouble.  For the most part, successful applicants have their Interest Rates reduced.  Outstanding Loan Balances are typically not written down.

However, in order to qualify, prospective homeowners have to prove they have a good-paying job, and that their estimated market value has not fallen more than 25% below their loan balance - a tall order here in the Rogers Park Neighborhood, and elsewhere.

Further, according to Wall Street Journal Reporter James R. Hagerty, red tape and paperwork has discouraged many from participating in the Loan Modification Program.  Currently, prospective Loan Mod Applicants must provide recent check stubs, a letter detailing the reason for their hardship, and copies of their last two years tax returns.  Until all docs are received by the bank, borrowers are sometimes granted temporary loan modifications, contingent on lender receipt of all required documents.

Delays and confusion caused by lender requirements, combined with sloppy systems for receiving required documentation by some banks, have left many would be loan-modified borrowers out in the cold.  Indeed, as of the end of 2009, out of an estimated 900,000 borrowers offered temporary loan modification, only about 66,000 have gotten their loan modification made permanent.

Nationally, as of the end of September, 2009, roughly 7.5 Million Households - a staggering 14% of all home mortgage loans - were either delinquent in their house payments at least 30 days, or were at some stage of the Foreclosure Process, according to the Mortgage Bankers Association.  For some severely "upside down" in home value versus mortgage balance, the decision to simply "walk away" is often seriously considered.

With new changes, effective June 1st, no Loan Modification can be started without necessary documentation already received.  The objective here - to avoid the problem of starting a loan mod program on a trial basis, only to later deny permanent modification on the mortgage loan. 

However, it is unclear whether this procedural change will actually result in more successful modifications being written.

Further, some experts feel the only road to permanent relief to underwater homeowners is to reduce principal balances due, on both the first and secondary mortgage loans, to bring them more into reality with market pricing in today's market.  That, however, is less likely to be adopted on a wide scale.


Posted: Friday, January 29, 2010 2:33 PM by Dean's Team


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