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Federal Affordable Modification Program is just missing the mark



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By : Jayson Gibson    99 or more times read
As with most federal agencies, bureaucracy supersedes reality. Once again, the Treasury Department has revamped its Home Affordable Modification Program. The problem is that these new changes only rip the band-aid off the wound. To make a real difference in the housing markets they are going to have to dig deeper.

The recent changes threaten to fine and publicly shame mortgage service companies for not processing a larger amount of revamped loans. They have also redefined the guidelines for short sales. These changes would make a difference if the problems were not systemic.

It is currently estimated that there are 7.5 million loans that are delinquent. The Treasury Department has reported that as of September 01, 2009 that they had pushed 375,000 defunct home loans into their trial modification program. Edward Pinto, who is the former chief credit officer at Fannie Mae estimates that of those 375,000 modifications, only 190,000 are likely to be accepted and completed.

Typically, there are three distinct areas within the mortgage failure groups. The first group consists of properties that are vacant and abandoned. The second group consists of people who are currently living in homes that they can not afford, even if their home loans were modified to a lower interest rate, and finally you have the third group. This group of borrowers can, and wants to stay within their homes if the governments' Federal Affordable Modification Program is truly intended to make a difference, it is going to have to focus its efforts and incentives towards the viable third group. The first two groups are a forgone conclusion.

Additional efforts need to be made to entice homeowners to stay in their homes, even though they have seen their homes' equity dwindle to a negative figure. Walk a-ways account for a large portion of the current foreclosures. If the governments' Federal Affordable Modification Program were to focus more on borrowers from the third group, we might be able to see definite changes in the current dismal numbers.

One option offered by Edward Pinto, was to rework specified loans from people within the third group. Focusing efforts on keeping these individuals in their homes by reducing their current balance owed on their primary residence by 20%, and allow the reworked loan to be reset to the current lower one. This would not only make their monthly payment more manageable, it would also offset the loss of equity in their home that has been the deciding factor in most walk a-ways. The amount of money that it would cost to do a program like the one suggested above would be equal to what is currently being spent on the Home Affordable Modification program; that is at present time making no discernible difference.

It has always been part of the American dream to own your own home. Those willing to work hard, no matter what their social status was, were always guaranteed the opportunity to become a homeowner. In the past decade that dream has become muddled. The government's failure to protect Americans from greedy lenders and their unscrupulous practices has jeopardized that very thing that we as Americans strive for. The ones who caused the housing problems got their bailouts, now it is time for our government to extend its hand to the ones who are truly in need "main street America".
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