Is your mortgage lender unwilling to renegotiate your mortgage, which is hundreds of thousand of dollars underwater? Shame on them, says the Obama administration, who has announced they will start to shame such lenders into submission.
This comes on the heels of a study that says 25 percent of home borrowers are under water. It also follows an analysis by a professor who said that the smart move, if you are hundreds of thousands of dollars under water, is to walk away.
The Home Affordable Modification Program (HAMP) was launched in March. It was hoped that by the government providing cash incentives to mortgage servicers that reduced monthly payments for distressed and under water homeowners, those who were facing higher payments or lower incomes could stay in their homes.
The modifications would hopefully include not just conversion from a possibly exorbitant variable-rate loan to a fixed rate one, but also a component for those who might be under water. So far, the program has underperformed.
The Mortgage Modification Conversion Drive will supposedly do what its name implies: push lenders to convert mortgages. The program will begin this week with three person "SWAT teams" sent to monitor the eight largest lenders at work. Twice-daily reports on their progress will be required.
The shame component will begin next week, as the Treasury Department will publish a list of the mortgage companies that are lagging in their conversions. Large lenders like Wells Fargo and Citigroup have made double-digit gains in the percentage of eligible borrowers they have signed up for trial modifications, but other companies like Ocwen Financial and American Home Mortgage Servicing have only increased their borrower participation by 6 percentage points or less since mid-2009.
With many under water, lowering the principal due could encourage homeowners stay in their homes and keep up with their payments. Based on the report by Brent T. White above, those who read it might feel it is better to just leave the mortgage, and that could derail the recovery in the U.S.
However, unless lenders "get it," and become concerned about that possibility, they will remain reluctant to reduce principal. The reason is accounting: reducing the principal forces lenders to recognize the losses on those loans, whereas, by not reducing the principal, they can "pretend" that the loans may one day become current again.
Still, many economists feel the best way to lowering foreclosure rates lies in principal reduction. Whether or not the Mortgage Modification Conversion Drive achieves that remains to be seen.
Written by Michael Santo
HULIQ.com
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