Foreclosure filings have not stopped despite the introduction of loan modification programs by Citigroup, Bank of America Corp., JP Morgan Chase, the Federal Housing Administration (FHA), by the Federal Deposit and Insurance Corp. (FDIC) at IndyMac Federal Bank and by several other mortgage lenders.
According to National Association of Consumer Bankruptcy Attorneys (NACBA) President Henry Sommer, the loan modification schemes failed because they were not sustainable. The modifications were not really meaningful so as to make a big dent on monthly amortizations.
NACBA brought up the case of the Hope for Homeowners loan modification program of the FHA, which aimed to refinance about 400,000 homeowners in danger of foreclosure. As of December, there had been only 312 applicants for the program and there had been no modifications made.
The NACBA study, which was undertaken by Valparaiso University School of Law Professor Alan White, has several significant findings:
Only about 35 percent of the loan modifications undertaken actually reduced monthly amortizations.
More than 90 percent of the modifications did not reduce the balance of the loan principal.
The total mortgage debt owed by homeowners has reached $10.5 trillion, an increase of 250 percent from the debt level in the late 1990s.
The foreclosure problem that initially affected the subprime group has reached the middle class.
The total number of foreclosed homes since the subprime credit crisis started has reached 1.2 million as of September. Currently, there are about 1.7 million homeowners in default and likely to receive foreclosure notices in 2009.
The NCBA findings support the prediction by Credit Suisse that more than 8 million foreclosures will occur over the four-year period starting 2009. Credit Suisse said that the foreclosure figure includes about 59 percent of the country’s subprime mortgage loans and about 11 percent of adjustable rate mortgages, Alternative-A mortgages and prime mortgage loans.
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