The Thin Line Between Loan Modifications and Home Foreclosure

The Thin Line Between Loan Modifications and Home Foreclosure

Many homeowners in Massachusetts, Rhode Island and elsewhere have struggled to keep up with mortgage payments during the Great Recession after job loss, medical emergencies and other personal crises. Contemplating a sea of foreclosed homes on the market, the Obama administration established in 2008 the Home Affordable Mortgage Program, known as HAMP, to help struggling homeowners re-set their monthly mortgage payments and keep their homes.

But critics and even HAMP advocates say that HAMP has not had the intended effect — many homeowners that attempted to find mortgage relief through HAMP are now facing foreclosure by their banks anyway.

Where Did HAMP Go Wrong?

HAMP was set up to assist struggling homeowners by allowing them to reduce their monthly mortgage payments through loan-principal reductions, interest-rate reductions and other tools; this is commonly known in the industry as loan modification. But to qualify for a loan modification, bank representatives told many distressed homeowners they must stop making monthly mortgage payments.

Desperate homeowners followed this advice, and most eventually had their monthly payments reduced while the banks evaluated their loan-modification applications. But the loan mod story does end there … their banks eventually told most HAMP applicants that they would not qualify for permanent loan modification for lack of income or for other reasons.

Banks then demanded that homeowners who had been paying reduced mortgage payments pay the difference between their original mortgage terms and the amount they paid during the temporary loan modification period. Faced with bank demands for $10,000 or $20,000 or even more, a vast number of HAMP applicants could not meet the banks’ demands to become current on their mortgages and now face home foreclosure.

In fact, a recent congressional oversight committee’s inquiry into the HAMP program shows that it probably will not achieve the targets set for it. Only about 320,000 permanent loan modifications have gone into effect, according to the most recent data released by the Federal Housing Finance Agency. In contrast, recent estimates put the number of foreclosed homes during the Great Recession at eight million or more by 2012.

Other Options for Struggling Homeowners

HAMP has helped some homeowners stay in their homes — but the line is very thin between help through HAMP and a foreclosure notice from the bank. Talk to an experienced bankruptcy attorney if you are struggling to make your monthly mortgage payments. You may have other options to save your home.