Many People Receiving Loan Modifications Drop Out

Loan modifications are a great way to help troubled homeowners make their mortgage payments. If this help is available though, why do so many people drop out of the modification program?

In the last several months, more than 1.3 million people who had a lot of trouble making their mortgage payments have entered into a trial loan workout. This is a program which is designed to help homeowners who are underwater and have trouble making their payments modify their loans to help make their payments more affordable. One of the other major benefits was that it was supposed to be a step in the right direction toward stabilizing the housing industry. Unfortunately more than 50 percent of the people who have entered into this helpful program have dropped out of the program.

According to the Treasury Department, 11 percent of the permanent loan modifications entered into in just the last nine months have defaulted. Under the Obama administration’s Making Home Affordable Program, about a half million modifications have been approved through a variety of lenders. In September alone, there were about 28,000 modifications.

The Making Home Affordable Program began in April 2009 and has since started about 1.4 million homeowners on trial modification programs. Unfortunately, about 700,000 of those homeowners have dropped out of the program. Of course, it’s not always the homeowner’s fault for dropping out of the modification program. One of the most cited causes for not following through on the permanent modification is due to lack of the correct documentation to finalize the modification. Another reason for defaulting on the mortgage following the trial modification is lack of payment. A third reason is because many of the people who applied for a modification did not qualify for the help because their mortgage fell short of the 31 percent of their household income that was needed to be eligible for the federal help.

So as the government tries to help troubled homeowners, it seems as though the problem still exists and there is no simple solution in sight. Even when programs are instated, eligibility requirements are not met or people fall into the same habits that got them into trouble in the first place. Sometimes it seems like more frustration than it is worth, but the people who actually benefit from those permanent modifications would probably argue that point.

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  • Annoyed

    November 05, 2010

    And some of us were dropped because they lied. We submitted everything they asked for time & time again through a period of 6 months (sometimes BOA didn't even tell us we were missing docs, we had to CALL THEM), have never once been late on a payment, though our mortgage is about 52% of our income, making our bills higher than our income, which is eating away at what little we have in our checking account, and we were never even given a trial payment. This program was supposed to be for the people stuck in the middle, still making payments, but struggling to. Well, we're living proof that there still isn't a program out there for us. So much for trying to do the right thing by making our payments. Maybe we should just do what everyone is doing and stop paying. Is that what they want us to do, really?

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