Is the Government Foreclosure Prevention Plan Failing?

27% of Payments Are Late

The Obama Administration’s Home Affordable Modification Plan which is a foreclosure prevention program which has been extended to 650,000 American homeowners now reports that 27% of payments are late. A U.S. Treasury Department survey of mortgage servicers found that “over 73% of borrowers are current in their trial plan payments,” Assistant Treasury Secretary Herbert Allison told a congressional oversight panel.

I suppose if you’re a glass half full type, the program is succeeding if such a high number of homeowners are able to meet their obligations, but if you’re a glass half empty type, signs point to failure with such a high default rate. The big question is, will the loan modification program improve or decline?

Mortgage Broker Justin McHood of VanDyk Mortgage explained the defaults by saying, “if you were one of the people who received a loan modification (either temporary or permanent) it is safe to assume that you had some type of hardship to receive the modification. So logically, if you become late after receiving a modification of some type, one of two things is happening, 1. your hardship got worse or 2. you made the decision to simply quit paying.”

What will improve mortgage default rates overall?

McHood said, “I suspect that although the unemployment is hovering in the low double-digits (recognizing that it is possible that the “real” unemployment may be higher) the real reason that people are re-defaulting is due to the fact that they have made the decision to “walk away” in some form due to a negative equity position in the home. And until that is fixed, I suspect that you will see more short sales and foreclosures and less successful loan modifications that do not default.”