Loan Modification Hell: 500,000 Borrowers Could Lose Their Temporary Loan Modifications

Last Updated Mar 15, 2010 10:32 AM EDT

Loan modification hell: Fixing this has become a good news/bad news situation:
  • Good news: According to the latest numbers on the Making Home Affordable Program, mortgage lenders increased the number of borrowers in permanent loan modifications by 45 percent in February.
  • Really bad news: Only about 170,000 loan modifications have been made permanent through HAMP.
  • Good news: Those borrowers who have had their loans modified will have much lower payments (because the interest rate has been lowered to around 2 percent) for five years before the payments begin to rise.
  • Bad news: There are 835,194 borrowers still in temporary loan modifications.
  • Good news: 91,843 borrowers are in "pending permanent modifications." This means that the servicer has approved a permanent modification, but the homeowners has yet to accept it.
  • Bad news: Nearly 90,000 trial loan modifications have been canceled.
  • Good news: According to the mortgage loan servicers, approximately 1.354 million trial loan modifications have been extended to homeowners so far, including just over one million HAMP modifications.
  • Bad news (with Treasury's best spin possible): According to Treasury, the 1.354 million trial loan modifications is 35 to 45 percent of the 3 to 4 million homeowners President Obama said the plan would help.
But here's the worst of it: Even though a total number of temporary loan modifications is a seemingly respectable 1.354 million, up to 500,000 borrowers could lose their temporary loan modifications.

More than half a million borrowers have already made the three required trial loan payments with no permanent loan modification offer from their lender, according to Treasury data. In a Washington Post analysis, reporter Renae Merle concludes that many of those borrowers will not be receiving an offer for a permanent loan modification.
Some won't qualify for a permanent loan modification because their lender feels they make too much money. Some because they make too little. Or, it might all come down to an extra $200 in a checking account.

What will happen to them? Some will get a non-HAMP private label modification from their lender. Most will fall into foreclosure. Some might be able to get away with a short sale.

In short, it's hard to see how the government will wind up helping 3 to 4 million avoid foreclosure.

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Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and the upcoming Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com.
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    Ilyce R. Glink is an award-winning, nationally-syndicated columnist, best-selling book author and founder of Best Money Moves, an employee benefit program that helps reduce financial stress. She also owns ThinkGlink.com, where readers can find real estate and personal finance resources.