Loan Modification Efforts Continue Expansion

November 7, 2008

A guest post from Frank Shump. Frank is a veteran from the financial services industry, and currently authors a blog called Thefinancecastle.com, which documents his thoughts on money-mattersand his adventures in self employment.

In the midst of the widening housing crisis, there’s been quite a lot of criticism from voters aimed at the recent efforts by the government to bail out financial institutions that are being dragged down by souring mortgage securities. After all, if the heart of the crisis lies in rising foreclosures, shouldn’t more efforts be focused on helping the homeowners themselves? Shouldn’t there be more efforts relating to modifying existing mortgages so consumers can stay in their homes? Efforts on both sides of the fence from both the government and the private sector have begun to take up the call.

The Bush administration, for it’s part, is supposedly working on a new homeowner bailout plan, Details on the plan are still few and far between, but it’ll likely involve incentivizing financial firms to change loan terms in exchange for having part of the loan guaranteed by the U.S. government. I went into further details in a previous post.

What are the financial firms themselves doing to help out homeowners? JP Morgan recently announced that it will be expanding it’s loan modification plan. The new expanded program will aim to reduce foreclosures on about $70 billion in loans. In total, the efforts could reach 400,000 consumers who currently have obligations to the firm. JP Morgan is going to put a hold on moving any of it’s mortgage obligations into foreclosure until the new program is installed. The firm has promised to hire on additional loan counselors and setup loan counseling operations across the country. These counselors will review mortgages that are in danger of going into foreclosure and discuss potential solutions with consumers. These solutions range from reducing rates to extending the terms on the mortgage, and in some cases replacing the current mortgage in it’s entirety. Bank of America has begun to make similar efforts as well.

This isn’t all that surprising given that with enough sour mortgage securities already on their books, financial firms are eager to help homeowners stay in their homes as long as it’s still profitable for them. Given these recent efforts made by financial institutions, one has to wonder if government intervention is even necessary. At present there are about 1,800 banks lining up for their own piece of the $700 billion pie, and not all of them actually need it. Many banks enrolling in the program are actually quite healthy, and just aim to take advantage of the free money while the getting is good.

Couldn’t the same problem result from government intervention in modifying existing mortgages that are under water? Won’t consumers take advantage of better terms if they can get it? What’s going to stop consumers from purposely tanking their mortgage if they know that Uncle Sam will be ready to step in and give them a better deal? This is dangerous territory we’re marching into here, and taxpayers are right to be concerned with how this government money will be spent.

Note from Morgan: If you’re interested in learning more about loan modifications and doing loan modifications on your own, be sure to read this series of articles I wrote about loan modifications a year ago. The link is to an affiliate program I’m a part of, and I will be compensated should you purchase the material; but I believe it to be valuable information that can help all home owners looking to modify their mortgage.

Share This

Posted in RSS