Banks Push Back Against Mortgage Modification Programs
Despite political encouragement and pressure from the Obama administration, some big banks are pushing back against the idea of reducing mortgage balances of struggling homeowners.

May 21, 2010 /24-7PressRelease/ -- Despite political encouragement and pressure from the Obama administration, some big banks are pushing back against the idea of reducing mortgage balances of struggling homeowners. Executives from JPMorgan Chase and Wells Fargo told Congress that the mortgage reduction tool would be used sparingly.

Many lenders believe there are very few cases in which a mortgage principal reduction makes financial sense for them. It's thought that these reductions can have negative repercussions, in effect encouraging home owners to buy more house than they can afford.

Good Intentions

The administration's Home Affordable Modification Program (HAMP) is designed to help beleaguered homeowners with underwater mortgages get their principals reduced. The foreclosure-prevention program reduces approved homeowners' monthly mortgage payments to 31 percent of their pre-tax income. Borrowers have their principals reduced by an average of 36 percent, which means an average monthly payment reduction of $512.

There are currently an estimated seven million homeowners facing foreclosure.

Too Little, Too Late

In a recent report, the Treasury Department said its mortgage modification program has resulted in 230,000 permanent modifications. Another 781,000 financially distressed homeowners are in trial modifications; of those, 108,000 have been approved for permanent modification.

Critics say the numbers are far too low and that the administration's efforts move far too slowly to get the financial aid needed immediately by millions of Americans.

A congressional report said that for every family that avoided foreclosure through HAMP, another 10 lost their homes.

Alternatives

Some people are opting to simply walk away from their underwater homes. While the action gets the borrower out from under an onerous loan, it has two significant, negative results: the family loses their home and their credit rating plummets.

It can take a decade to recover and rebuild your credit after walking away from a mortgage.

Many homeowners turn to Chapter 13 bankruptcy as a way of reorganizing their debts, enabling them to save their homes from foreclosure. By filing a Chapter 13 bankruptcy, families stop foreclosure proceedings and can catch up on delinquent payments over time.

A Chapter 13 bankruptcy can also result in the discharge of some debts, in addition to stopping creditor harassment.

If You Face Foreclosure

If your family faces losing your home to foreclosure, speak to a Milwaukee bankruptcy attorney who can assess your financial situation and advise you on Chapter 13 bankruptcy, as well as Chapter 7 bankruptcy and other legal options you have available to you to deal with your debt.

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