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Loan Modifications – To be permanent or not to be permanent?

The Obama administration's attempts to help homeowners stay in their homes through mortgage modifications are a point.  These rules and policies were put into place to help borrowers who are in trouble with their mortgages.  These are people behind in their payments, and likely under water, owing more on their homes than they are worth.  Some are just reaching the point where ARM (Adjustable Rate Mortgages) are resetting, raising their payments significantly on homes that aren't worth what they used to be.  Refinancing in an underwater mortgage isn't an option, so the government has been fostering mortgage modification programs to help.

These programs were to place borrowers into a temporary status of relief by quickly adjusting payments to allow them to avoid foreclosure.  The goal was then to move these modifications into a permanent status, hoping that a great many homeowners would remain in their homes and keep them off the growing foreclosure inventory lists.  The problem is that temporary hasn't moved to permanent in the vast majority of cases.  The mortgages have been altered under the administration's $75 billion Home Affordable Modification Program, which uses financial incentives to get banks and other mortgage holders to reduce the payments for homeowners who meet certain qualifications.

With hundreds of thousands of these temporary modifications not moving on to a permanent payment reduction, the government is stepping in to motivate lenders to do what they promised when they signed up for the program.  One report says that about 375,000 consumers have met all requirements and have submitted all documents, and these loans are eligible to move to permanent status by the end of the year.  But, there seems to be a lack of traction in moving in that direction.  The government hopes to motivate or embarrass lenders to get more action in this regard quickly.

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