According to the updated statistics by the United States Department of Labor, the number of unemployed persons increased by 787,000 to 14.5 million in May, raising the unemployment rate to 9.4 percent.
While the Obama Making Home Affordable Modification Plan was designed around a subprime mortgage crisis model vs an unemployment model, as a recent Wall Street Journal article suggests, the administration is faced with a new set of challenges that are adding fuel to this foreclosure fire.
The administration is considering making changes to the loan-modification program to address the current employment landscape.
“We recognize that unemployment is a significant complicating factor,” said Deputy Assistant Treasury Secretary Seth Wheeler. “We are studying what more we can do.”
The Obama program currently calls on mortgage-servicing companies to consider options other than loan modifications for borrowers who can’t qualify for them for a range of reasons, including loss of income.
One possibility is a forbearance plan that allows borrowers to hold off from making mortgage payments for several months while they look for work. But there are no specific guidelines for determining who should get forbearance and for how long.
The administration is weighing whether it should provide more specific guidelines for how mortgage companies should work with borrowers who have lost their jobs but are believed to be good candidates for re-employment. It is also considering providing additional incentives to encourage servicers to offer forbearance plans.
Several Federal Reserve economists, meanwhile, have suggested the government pay a share of the mortgage payment, for a limited time, for borrowers who see a significant disruption in their income.
Other options include providing short-term loans to borrowers who have lost jobs, or giving special treatment to borrowers likely to become re-employed soon. Administration officials haven’t taken a position on these options, and said each brings its own challenges.
The rise in unemployment-related delinquencies comes as 20 mortgage-servicing companies are ramping up efforts to modify troubled loans under the Obama plan. More than 200,000 borrowers have received modification offers under the program, which could help as many as four million borrowers, according to administration officials.
Housing counselors say that modifications under the plan are producing substantial payment reductions for some borrowers. But they complain that many are being kept waiting for help as mortgage-servicing companies get up to speed.
It is hard to determine whether or not a loan modification may be in the bank’s best interest. Either way, it still boils down to a properly packaged loan modification file along with a well written hardship letter.
Knowing what your lender needs in order to approve your loan modification is the first step to avoiding the common nightmare that most homeowners seem to be having when trying to deal with their servicer / lender on their own.
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submitting a Loan Modification request.
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