Mortgage Modifications

Many homeowners will receive foreclosure-prevention help this year, according to an industry report issued Monday, with the number expected to rise to more than 3 million in 2009.But fear is that a great number of these workouts will fail and many families will lose their homes anyway.Hope Now, the private-sector coalition of major lenders, servicers and consumer advocates, said that it completed 208,000 loan adjustments in November, and that the number of such adjustments would rise to more than 300,000 a month next year.The workouts being offered borrowers were of two types.First, there are simple repayment plans, which allow borrowers time to make up missed payments. Second, there are mortgage modifications, the more comprehensive and effective of the two types, which involve reducing or freezing interest rates, expanding the time given to repay loans or lowering mortgage balances. Many more of the workouts being issued by Hope Now members are mortgage modifications than in the past. These increased by 29% during the three months ended Nov. 30, while repayment plans increased by just 6%.

The goal is to make these mortgages more affordable, more sustainable.

Hope Now's critics claim, however, that even a lot of the mortgage modifications being done will prove unsuccessful because they do little to actually lower mortgage payments. They may merely freeze rates -- at unaffordable levels -- but add missed payments to mortgage balances. Some of the borrowers are getting put into modifications that are built to fail. Data released in early December, revealed that 51% of those with loans modified in the second quarter were already delinquent with their payments within just six months of the workouts. The number of modifications completed in November fell to 99,823, a 4% decrease compared with October. The good news was a decline in the number of actual completed foreclosures. There were 69,075 foreclosure sales during the month, a 14% drop from October. Industry insiders attribute some of the foreclosure sale drop to state and local initiatives that have instituted moratoriums or delays on foreclosure actions. For example, in Massachusetts, every at-risk homeowner now has to be notified of their lender's intention to file a notice of default against them, and they get a 90 day window during which they can attempt to bring their payments up to date.

And in November, Fannie Mae and Freddie Mac both announced moratoriums on foreclosures, and other major lenders also cut back on foreclosure proceedings.

Will this help etop tyhe flood remains to be seen.