New foreclosure prevention program doing very little

The elephant in the living room of this recession is the huge number of mortgages that are in trouble — or going to be in trouble —  because of increased interest rates, layoffs, and other demands on people’s incomes.  The Mortgage Bankers Association reports that nearly one in twelve (about 8%) of all mortgages are at least 90 days past due or are in foreclosure right now, and more are expected to fall into that situation.

Many of my BLOG entries have dealt with this issue and the possible solutions.  None of those tried so far has worked for reasons we detail in these entries on Mortgages and Foreclosure Prevention.

The Treasury Department has now reported on the latest plan, which gives incentives to lenders to give borrowers a “trial loan modification” that can then be turned into a permanent change if three payments are made on time.  Like all the other plans, it isn’t doing what it was supposed to.  Only 12% of eligible borrowers have taken advantage of the program so far.

The banks servicing these loans who are participating in the program offer a lot of excuses as to why the program has not reached more people who need it, but to me, the problem is the same old one:  The lenders are incompetent.

As a story on National Public Radio (NPR) detailed the other day, when you call your lender to ask for a loan modification, a clerk asks you a couple of questions, puts the numbers into a computer and is usually told that you do not qualify even though someone familiar with the program who reviewed the case thinks that you do.

Even if you are given initial approval, you are not even close to getting the trial.  The next step is paperwork, lots of it, which they often lose.  One person in the story had sent her paperwork in five times and the servicer kept saying they never got it.

As I have said before, bankruptcy courts should be allowed to reduce principle on mortgages (a “cram down”) to 90% of the current market value of the home.  The banks have fought that change tooth and nail, and so far they have won.  If it ever did pass, they’d get off their butts really quickly and start making deals rather than have a judge make the decision for them.

Meanwhile if you need a mortgage loan modification, the best thing to do is work through one of the FREE (do NOT pay for this service) counselors approved by the federal government.

A list of local counselors is available from HUD.
You can also get names of approved  counseling organizations from the Hope website or by calling the HOPE HOTLINE at 888-995-4673.  The Neighborhood Assistance Corporation does this work too.

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