January 10th, 2011 9:29 AM by Dave Gubler
What Can You Do If Your Loan Modification Is Denied? First let's understand why loan mods are failing:
Loan Mod Turned Down or Dragging On & On? If you own a home and your loan modification has been denied or your HAMP trial modification has persisted for more than 6 months it is definately time to examine other foreclosure alternatives (short sale, HAFA short sale, reinstatement, forbearance plan, renting out the home, etc.). As banks recovered from the housing crisis with massive government assistance more and more distressed homeowner's have been denied conventional and government backed loan modifications. Why? Because the Making Home Affordable program (or HAMP) was not really intended to assist homeowners; it was truly intended to assist financial institutions. It is time we accepted this truth about loan modifications; especially while making difficult home ownership decisions.
Effective Loan Modification Is Not A Reality for the vast majority of distressed homeowners. So few homeowners have obtained effective relief that for all practical purposes loan modification should be considered a myth. Yes, some homeowners do obtain a beneficial result but the statistics paint a bleak picture for anyone relying upon that result. According to the U.S. Treasury Department only about 9% of the homeowners that need mortgage relief are getting it through loan modification (with Making Home Affordable or non-government modifications). Of the 1,282,912 trial loan modifications started under the HAMP program only 398,021 resulted in a permanent loan modification. THAT IS LESS THAN 1 IN 3! The results are even worse if we look at loan modification in general (government & non-government), fewer than 1 in 10 homeowners in need have obtained effective relief.
Permanent HAMP Loan Modifications Are Failing 4.6% of permanent HAMP modifications granted 3 months ago are already 60+ days delinquent! 3 months in and nearly five percent of them are seriously delinquent? Why? If the permanent modification was designed to be sustainable then how come so many people are falling behind already? Wait, it gets worse... 9.8% of the homeowners that are 6 months in to their permanent HAMP modification are already 60+ days delinquent. See a pattern here? Amazingly, 15.6% of all permanent HAMP modifications established 9 months ago are 60 or more days delinquent (and most of these are 90 or more days delinquent). A truly frightening 25.4% of permanent HAMP modifications that are 12 months in are 60 or more days delinquent as of the date of the latest Treasury report (6/31/10).
So why isn't loan modification working? In simple terms, most homeowners cannot get one and even when they beat the odds and obtain a loan modification it does not effectively solve the two most important issues for homeowners in need:
REDUCED INCOME
NEGATIVE EQUITY (UNDERWATER)
Most distressed homeowners have experienced a significant reduction in household income and the value of their home has declined substantially so that they owe more than their home is worth. Less income to survive with and little or no equity left to fight for. Loan modification, in most cases, does not reduce the loan balance and does not reduce monthly payments enough to be effective. Sadly, many loan modifications actually result in an increased monthly payment! 3 - 8 months of work to get a loan modification that results in a higher monthly payment! Does this sound like effective relief?
Even for the fortunate few who have had their payments reduced by more than 20% the re-default rate is alarming. I understand and empathize with a homeowner's desire to keep their home but given the low success rate of loan mods it is wise to examine other foreclosure alternatives before the opportunity is lost. A short sale may or may not be the best option available to you but it should be considered and researched as early in the foreclosure timeline as possible.
Carefully examine your own budget and finances. What modified monthly payment will you require in order to remain in the home? Are you likely to experience another drop in income? Try to eliminate your feelings here and apply a very logical assessment. Yes, this is difficult, but if you remove emotion and focus on the numbers your long-term welfare will be protected.