Troubled mortgages were subjected to modification programs early this year in a bid to stem the rising tide of foreclosures. It proved favorable for some time, but after only 6 months, these homeowners are faced once again with the threat of foreclosures.
According to the U.S. Comptroller, more than half of mortgages who underwent loan modifications are once again delinquent in payments.
These developments have raised questions and arguments among government agencies and lending institutions that are currently developing programs to put a stop to the crisis on foreclosures. They are questioning if lenders are not doing a good job in modifying loans, or if delinquent borrowers do not deserve to be homeowners and should receive no bailout.
While federal agencies are investigating the reasons for these renewed defaults, housing advocates and real estate industry experts are putting the blame on lenders. These sectors describe these recurrences because of failures from lenders to provide homeowners with affordable loan fixes. Some homeowners even end up with a higher monthly payment, which will push them toward foreclosures.
Mortgage restructuring was put forward several months back as a solution to foreclosures. To achieve loan modifications, lenders can reduce interest rates to lower monthly payments. Other forms of modification include a write off on principal balance, which can both lower the monthly amortizations and reduce the overall debt. Some modifications involve extending the loan term and postpone percentage of the debt.
This however can make payments possible as a short-term solution, but could actually increase the amount that homeowners owe. All these are supposed to make payments affordable and stop the flow of foreclosures for these mortgages.
However, for these mortgages that have gone default anew, lenders made modifications on these loans but factored-in unpaid principal, interest, and escrowed taxes, which actually made payment terms higher. In such scenarios, homeowners fail to make monthly payments and eventually end up in default on their mortgages.
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