There has been a lot of news lately about the government sponsored loan modification programs.  In general, there are some who are lamenting the low number of homeowners who have been approved for a permanent loan modification.  Further, they want more done to increase the number.  From a real estate standpoint, I find all of this to be nothing more than political posturing.  Loan modification rarely succeed in their stated goal which is to allow the homeowner to have payments affordable enough to retain ownership of their homes.  The reasons are quite obvious.  Most owners stop paying their mortgage because of a major economic change such as a job loss, divorce, medical expenses, and the like.  Unless they are able to recover from it, the loan modification isn't going to help them.  If one loses their job and therefore can't make the $1,800 mortgage payment, how is lowering it to $1,600 going to help?  Certainly, it will help a small number of folks, but the vast majority are not able to make the payments on the reduced amount because of the major economic change.  As such, it is logically expected that a loan modification will work out in only some cases.  Is it worth examining for borrowers?  Of course, it is worth examining, but to expect it to solve the foreclosure problem is naive.

A good case in point is HSBC Bank.  In 2003, they purchased Household bank of Illinois.  Household was a sub-prime lender.  Even before the big sub-prime collapse, HSBC had a high rate of foreclosure on the loans from Household.  They began a loan modification program because they didn't want to foreclose on all these loans.  What they discovered was that very few people were able to make the payments on the reduced amounts.  The loan modification program simply delayed the inevitable and HSBC had to foreclose.

While I certainly applaud programs that can help avoid foreclosure, we should concentrate on what actually works.  If you or someone you know is behind on your mortgage payments, contact me today so that we can explore options to avoid foreclosure.