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Are Programs Progressing?

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Posted On: 09/16/2009

Q: You hear a lot about government programs, state plans and private efforts to stop foreclosures. Do any of these programs actually work?

A: The evidence to date is that such efforts either don’t work, don’t work very well or merely delay the inevitable for most borrowers. Let’s look at the evidence.

First, we had the FHASecure plan. The purpose of the program, said HUD, was to “refinance mortgages that, due to the increased mortgage payment following the reset, have become delinquent.” Translation: Delinquent conventional borrowers would be allowed to refinance with FHA-insured loans.

The FHASecure loan program “helped 100,000 homeowners refinance their mortgages and avoid foreclosure” according to a 2008 HUD statement. In fact, what happened was that the program was re-defined to include ALL borrowers who refinanced with FHA mortgages, not just those who were delinquent.

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And how many delinquent conventional loans were actually successful with the FHASecure program – you remember, the folks we’re trying to help? In fiscal 2008 just 3,794 delinquent conventional borrowers refinanced under the FHASecure plan.

Second, we have the Hope For Homeowners program. The results here are stunning: As of June 30, there had been 949 H4H applications – and only 1 approved loan. I have no idea how even one loan made it through the program, but along with the dodo it should be stuffed and displayed at the Smithsonian as evidence that a Hope for Homeowners modification once existed.

Third, we have a variety of state moratoriums. In the typical case a state simply says there can be no foreclosures unless a certain period of time has elapsed, say 90 days. The idea is that lenders and borrowers will work out a loan modification or payment plan while the foreclosure process is on hold and that foreclosures will then be avoided.

In practice moratoriums often do little other than delay the foreclosure process. Toxic loans with higher costs remain in place, falling home values make refinancing impossible in many areas and for those borrowers who have lost their jobs no modification can help.

But let’s say that borrowers can get their loans modified. The most-recent government study shows that more than half of all loan modifications were again delinquent after six months. Why? Part of the reason surely relates to the fact that 27.3 percent of all loan modifications resulted in unchanged monthly costs while 18.5 percent saw an actual payment increase.

The latest federal effort to stop foreclosures is the Home Affordable Refinance Program. Treasury representative Meg Reilly told us via e-mail that as of mid-June “nearly 200,000 trial loan modification offers have been extended to homeowners.”

This is a huge number – by far the largest to date for a fed program – but we also need to see how many borrowers successfully complete the three-month trial period. We then need to see how many owners can keep up their payments once their loans are modified for the long term.

The Bottom Line: To date loan modification programs have had only minimal success but with HARP we may be seeing something new, different and perhaps better. If you’re facing hard times and the possibility of foreclosure, please take these steps.

First, if financial problems arise contact your lender.

Second, if you pay for private mortgage insurance, contact your MI company. You may qualify for “claim advance” assistance from the MI company that can allow you to avoid foreclosure.

Third, for information, resources and links, please see an extensive – and free – loan modification guide at OurBroker.com

Fourth, look at the federal information available at www.makinghomeaffordable.gov.

Fifth, call your state’s attorney general. These offices often know about local assistance programs and have relationships with lenders. They can also alert you to loan modification scammers.

Sixth, if you need legal help contact such sources as community housing agencies, bar associations and law schools. All may be able to get you started with pro bono attorney services.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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