Loan Modifications Falling Short of Goal

As expected (by myself, not the Obama camp), the housing initiative that allows borrowers to modify their home loans to avoid foreclosure is not going so well. The original goal was set at helping out between 3 and 4 million homeowners. Everyone cheered at the proposal and the ‘promise’ but reality is sinking in. The government realizes that the goal is unrealistic and took some precautionary measures to attempt to stay on track.

Tuesday saw an all-day meeting at the Treasury Department between the Obama adminstration and mortgage company exectutives. The end result…. a ‘pledge’. A pledge that 500,000 loan modifications will be made by November 1st. That’s as good as an empty promise to me.

Only about 200,000 home owners were enrolled in the program as of this week. The major complaint from applicants is that the process is too confusing and is chock full of bureaucracy. Banks are even continuing the foreclosure process while applicants are awaiting approval.

I don’t know the specifics of the process, but it’s my understanding that the banks have little incentive to modify these bad loans. A modified bad loan is still a bad loan. It’s still the same borrower. The foreclosure process, which ends up costing the bank anyway, could be a less costly alternative to a modified loan that will end up defaulting again anyway. So it’ll be interesting to see if this goal is reached. We’ll check in again when an update is released.