13 Jul Mortgage Modification Failure Inevitable
The Motley Fool says the currently-available home mortgage loan modification programs are “dangerously delaying the inevitable“.
‘This all loops back to a painful reality: The only way to climb out of the housing mess is to let prices find a true bottom,” according to The Fool. “Ultimately, that means those who bought homes they could never afford will have to bite the bullet and move on. There’s really no way around that.”
The Fool observed that most loan modifications are ineffective, citing “pathetic” statistics from federal loan regulators that half of the modified loans were in default again three months later. Typical modifications now consist of lowering interest or tacking missed payments onto the back end of the loan. A scant 1.8% of modifications involved principal reduction, The Fool observed.
The Fool blames the programs’ failure on upside-down-loans, loan balances that exceed the real estate value. Without principal reduction, loan modifications don’t work.
“Underwater homeowners are still highly incentivized to default, even with reduced monthly payments. And as home prices fall, their ranks are growing by the day. Modifications in their current form are, more often than not, just delaying the inevitable.”
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