According to an article in the Star-Telegram, a recent report revealed that more than 50 percent of homeowners who received mortgage modifications were at least two mortgage payments delinquent within a year, making them vulnerable to foreclosure. The report also revealed that homeowners who received mortgage modifications that reduced their monthly payments were less likely to become vulnerable to foreclosure again.
The article said:
"About one in three borrowers whose monthly payments were reduced by 20 percent or more had fallen behind again within a year. That compares with more than 60 percent for borrowers whose loan payments were left unchanged or increased."
That says a lot about how mortgage modifications should be done if our real aim is to reduce the number of foreclosures. Homeowners facing foreclosure are behind on their mortgage because they cannot afford to pay it any longer because the monthly mortgage payments are usually too high for their budgets. Those homeowners need significant reductions to their monthly payment amount if they are to avoid foreclosure in the future. Many critics of mortgage modification plans say that they should be done away with; but the truth is that modifications will work if it is used to solve the right problems.
The problem for homeowners facing foreclosure is usually two pronged, 1) their monthly mortgage payment is too high and 2) they owe more debt on their home that it is worth. If mortgage modifications can tackle both of these problems simultaneously, then we could create mortgage modification plans that actually work in the long term to prevent foreclosure .