The Obama Home Loan Modification Program–Should Banks Do More To Offer Mortgage Assistance Plans?

Over the past months, the Obama home loan modification plan from the Making Home Affordable Program has assisted homeowners by offering more affordable mortgage payment options which are being implemented by various financial institutions that service homeowner mortgages. Yet, there are mixed reviews and opinions on the home loan modification program has many have come to feel that the assistance available to homeowners has been met with a meager amount of success.

Some of the nation’s top financial institutions like Bank of America, Chase, Citigroup, and Wells Fargo were leading the pack at the beginning of the year when monthly modification reports began to be published from the Making Home Affordable Program. While many of these financial institutions have seen positive results over the past months, the original goal of homeowners who were to be helped through this modification plan has fallen short of the actual number of homeowners who have been assisted.

While this doesn’t mean that this modification program from the Obama Administration has not helped anyone, frustrated homeowners who have been denied mortgage assistance have often pointed out that servicers are making the modification program incredibly difficult, keeping homeowners in a trial period for much longer than is required, and simply denying homeowners assistance only to pursue a foreclosure on their home.

However, there have been faults on the part of homeowners, according to many of the nation’s financial institutions who are providing these modification plans, as some individuals have not responded to offers for a modification, have filed improper paperwork, or simply have a debt-to-income ratio that is so low they do not meet the qualifications required of a homeowner entering into a home loan modification program.

Again, homeowners do have stories which have brought about questions as to whether home loan modification plans are being properly implemented, but recent foreclosures that were questioned have also added fuel to the fire for homeowners who are accusing mortgage servicers of not doing all they can to offer foreclosure prevention assistance.

While many of the cases which were under review as a result of mortgage servicers “robo-signing” were deemed to be instances where a homeowner would have faced the loss of their home no matter if a proper foreclosure process were used or not, there are homeowners who feel that their case was not reviewed in a way that may have brought about an appropriate foreclosure prevention option, like a home loan modification.

Recently, Daniel Tarullo, a member of the Board of Governors of the Federal Reserve, stated that these foreclosure suspensions have brought to light the fact that mortgage servicers need to weigh the social costs of opting to foreclose on a home rather than offer mortgage assistance programs, reduction of a mortgage principal for underwater homes, or other alternatives to help homeowners avoid the loss of their home. Mr. Tarullo mentioned that homeowners who attempt to get a modification are often disappointed, but homeowners who have simply stopped making their mortgage payments have been able to stay in their home for an extended period of time, without cost, before they are to face a formal foreclosure.

There are some arguments that financial institutions do, in certain cases, stand to benefit from incentives if they foreclose rather than modify a home loan, but it was also mentioned that there have been organizations within the mortgage industry who have attempted to increase their rate of modifications versus foreclosures. As an example, it has been reported over the past months that proprietary home loan modifications have been offered to individuals who may not qualify for a governmental modification program, and these in-house mortgage assistance plans have outnumbered those made from the Making Home Affordable Program.

While factors which have been the cause of so many mortgage difficulties still remain in place, financial institutions who have been lacking in their efforts concerning home loan modifications are being called upon to do more to help homeowners avoid the loss of their home through modification programs. Again, some financial institutions may be able to evict the homeowner and quickly resell the property, but in many instances the costs of doing this may outweigh the benefits and, more so, there are homes which are simply sitting empty and causing property values to decline.

However, both servicers and the Obama Administration have offered various mortgage assistance plans through not only the Making Home Affordable Program and in-house modification initiatives, but funding made available to states through the Hardest Hit Fund is also allowing various state housing agencies to offer various types of home loan assistance in areas where unemployment and underwater mortgages have particularly been a problem.

Understandably, mortgage modifications and other home loan assistance plans are no perfect solution to the housing troubles that are being faced at the present time and not all homeowners may qualify for or deserve aid for their mortgage. Yet,  many believe that if servicers and homeowners can begin to work together and combat the current financial troubles that are being experienced, more homeowners will be able to avoid foreclosure as the economy slowly recovers and this could allow more individuals to keep their home until they can resume their traditional home loan payment plan.