Gov't: Our Loan Mods Are Better Than Alternative

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A new government report may be viewed as a big pat on the back for its loan modification program, with data showing that government efforts to stall foreclosures are faring better than some private market solutions.

The government report comes from the U.S. Office of the Comptroller of the Currency and the Office of Thrift Supervision.

In it, study researchers conclude that fewer than 17% of home loans modified under President Obama’s Home Affordable Modification Program had missed at least one monthly payment and about 8% had fallen behind on two payments. The numbers cover the first quarter of 2010, the Office of the Comptroller of the Currency said.

The study also concludes that the government numbers are better than the ones coming out of the private sector. According to the report, about 25% of privately-managed loan modification programs would up with the homeowner 30 days late on their mortgage payment. In addition, about 10% were past due beyond 60 days.

Some other interesting conclusions from the government report:

  • HAMP is targeting two strategies to get homeowners out of trouble: reducing interest rates on loan payments to as low as 2%; and by extending loan terms to as long as 40 years.
  • The U.S. government says that borrowers who complete the HAMP process are saving $514 a month, on average.
  • About 33% of the 1.2 million mortgage-holders in the HAMP program have since dropped out of the program.
  • About 340,000 mortgage-holders (27% of all enrollees) have garnered permanent loan modifications, and are currently keeping up with payments.

Study authors say that the government model works better because the emphasis is on lower payments based on affordability and looser requirements for financial documents compared with private sector efforts. Of course, Uncle Sam doesn’t lose any money on a loan modification and a big bank or mortgage lender usually does — so it’s only fair to point out who has a direct financial stake in a loan modification deal and who doesn’t.

That said, so far it would seem that getting a fresh start with a new home loan via HAMP is a better deal for homeowners than dealing directly with the lender.

Otherwise, there is some negative news in the report. According to Office of the Comptroller of the Currency figures, the number of U.S. foreclosures has increased “substantially” in the first quarter of 2010.

"Compared with the previous quarter, newly initiated foreclosures increased nearly 19% to almost 370,536; foreclosures in process increased nearly 9% to 1,170,874; and completed foreclosures increased nearly 19% to 153,654," the report states. "Prior reports also cited the increase in foreclosures, as servicers began to exhaust options to assist holders of seriously delinquent mortgages and existing foreclosures in process worked through the system."

As foreclosures rise, the pressure cooker will intensify for both HAMP officials and for private lenders. If current trends stand, they’ll be inundated with applications for help in the upcoming months.

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