Half of all loan modifications delinquent again within year

From CNNMoney.com:

It’s looking like homeowners who received loan modifications last year are already falling behind according to a federal report released Wednesday. I think this is an absolute tragedy—this economy continues to wreak havoc on the lives of many! Here’s what the article had to say:

Modifications made under President Obama's foreclosure prevention program, known as HAMP, had lower re-default rates than non-government modifications. Some 7.7% of HAMP modifications were delinquent after three months, compared with 11.3% of all modifications.

Is this an all-across-the-board problem or were there some loan modifications that fared better? HAMP had lower default rates than other non-government modifications. Under the HAMP program borrows receive incentives for making timely mortgage payments and they have their monthly payments reduced to no more than 31% of their pre-tax income.

Many experts say that servicers must do more principal reduction if they want to halt the foreclosure tidal wave. Homeowners are more likely to walk away if they owe much more than the home is worth, a situation about 1 in 4 borrowers find themselves in.

What are your thoughts on loan modifications or government programs like HAMP? Do you agree with borrowers getting incentives for paying their mortgages on time?

The Pros and Cons of Loan Modifications

As announced by this new press release, my law firm has begun offering loan modification services in addition to tax debt resolution. As the country’s economy continues to lag, and more and more jobs are being cut, thousands of families are turning to loan modifications to stay in their homes. Unfortunately, there is a lot of confusion in the industry, so to help my blog readers who might be considering a loan modification I have put together the following list of pros and cons.

Pro: Avoiding Foreclosure

For many families, the biggest incentive to get a loan modification is to avoid being forced into foreclosure or even bankruptcy. By modifying the terms of your loan, you can reduce your monthly payments without loosing your home.

Con: Confusing Process

The loan modification process is actually more like a tangled web of arguments, negotiations, and presentation of evidence. It can take months to reach any type of settlement, and involves dozens of phone calls, countless letters, and hours of direct negotiation. Fortunately, if you hire a professional then they can handle all of this on your behalf.

Pro: Professional Help

As I mentioned before, modifying the terms of your loan is a confusing process. However, by hiring a professional you can relax while some one else fights with your lender to renegotiate the terms of your loan. Additionally, a professional loan modification company will have more experience with the process, and can often obtain better settlements then a consumer could negotiating on their own. For more information on the loan modification services offered by my law firm, checkout this page on RoniDeutch.com.

Con: Time Consuming

Loan modifications can take weeks, or even months depending on your bank or lender. For this reason, you should begin the loan modification process as soon as you realize that you can no longer afford to make your mortgage payments. If you wait until the foreclosure process has already begun, then it can make modifying your loan more difficult.

Pro: Affordable Monthly Payments

The main goal of a loan modification is to reduce your monthly payments so that you can afford to stay in your house. This can be done either through reducing your principal amount, or reducing your interest rate. Either way, the end result is an affordable monthly payment.

Con: Affect on Credit

Although a loan modification itself will not impact your credit, missed mortgage payments will. Therefore, if it takes a few months to negotiate a loan modification and you accidentally miss a mortgage payment then it will hurt your credit.

Pro: Cancelled Debt is NOT Taxable

Unlike cancelled credit card debt, the IRS does not consider cancelled mortgage debt taxable income. Therefore, if part of your loan modification includes a reduction of your principal loan amount, then you will not need to worry about paying taxes on it. For more information on the topic, check out this entry on the Roni Deutch Tax Relief Blog titled Tax Implications of Mortgage Loan Modifications.

Mortgage Firms Struggle to Redo Hard-Hit Loans

At a time when struggling homeowners need it most, new studies are showing that mortgage firms are struggling to negotiate loan modifications fast enough to keep up with demand. The change comes with new government pressure to negotiate more loans under their Home Affordable Modification Program, or HAMP, where the Federal government encourages these firms to help keep families in their homes. Check out the following story on the issue courtesy of the Wall Street Journal.

Morgan Stanley chief John Mack recently made a new friend, he told shareholders in April -- a Southern woman who had benefited from the big bank's stepped-up efforts to modify loans under a new federal program aimed at keeping borrowers in their homes.

"I'm now invited -- if I ever visit Memphis, Tennessee -- to drive two hours south to have dinner with her and her family," Mr. Mack said.

But by some measures, Morgan Stanley's mortgage-loan servicing firm, Saxon Mortgage Services Inc., has a long road to go. An April Credit Suisse Group analysis of how quickly companies have renegotiated loans ranked Saxon last among 18 mortgage-servicing firms. Saxon has modified just 6% of the loans it oversees that originated between 2005 and 2007. By contrast, Litton Loan Servicing, a Goldman Sachs Group Inc. unit, modified 28% of its loans.

Such firms are at the center of a grand government experiment aimed at halting foreclosures and the collateral damage they cause neighboring homes. New foreclosure notices will total 2.4 million this year, which could trigger price drops in 69.5 million nearby homes, estimates the Center for Responsible Lending, a financial-services research and policy firm. At an average decline of $7,200 a house, that translates to a potential drop of $502 billion in total U.S. property values.

The government plan, rolled out in February and called the Home Affordable Modification Program, or HAMP, will pay mortgage-servicing firms to modify mortgages and find other ways to keep people in their homes. But the program's sheer scale and the speed with which it was rolled out have created a new set of problems for some of the 27 firms charged with carrying it out.

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