Indianapolis Area Real Estate Blog

Are Loan Modifications Working?

Heres some news which really doesn't surprise me. Earlier this year and under pressure from the government, mortgage lenders made more than 200,000 loan modifications to delinquent homeowners. The modifications came in one of three forms, or a combination:

  1. Interest rate reduction
  2. Loan term extension
  3. Principal forgiveness

But despite the modifications, as of October 1, more than half of the homeowners that received assistance were already two months behind on their modified monthly payments. 

This late-pay statistic was a focal point on Capitol Hill yesterday as the government admitted delinquencies 'were larger than [they] thought they'd be'.  Loan modifications are proving inadequate at slowing foreclosures and yesterday's session opened the door to more effective foreclosure prevention measures. Recent statistics indicate 1 of every 10 homeowners is in default.

However, of all of the statistics published, there was one of particular interest.   

Based on its loan modifications to-date, the FDIC has found that modified borrowers default far less when new monthly payments are less than 38 percent of monthly household income.  This is important because Freddie Mac guidelines for ordinary mortgage applicants currently cap that rate at 45 percent.

If the 38 percent figure holds up long-term, it may lead mortgage lenders to permenantly reduce maximum debt-to-income allowances.  Already, mortgage insurers have taken this step so it's not out of the question for lenders.  Tighter guidelines mean fewer mortgage approvals.

If you're unsure of whether now is a good time to buy a home, consider that mortgage rates are low, mortgage guidelines are tightening, and foreclosure prevention efforts reduce the supply of available homes.

Prices may not have bottomed, but the market is giving everyone a lot of reasons to consider buying now.


#1 By Scott at 12/10/2008 9:29 AM

Loan modifications in my opinion are not working because the bailout plan was not focused on modifications, just injecting capital into the banks to stimulate lending. They SHOULD start worrying about the modifications which would save a lot of banks

#2 By Paula at 12/19/2008 4:59 AM

Scott - Some people just got in way over their heads and a modification is only a temporary relief. Many need to sell and scale down their expenses.

I have talked with people who refused modifications, which made no sense to me.

Post a Comment

Blog Archives

Posts By Category

All Categories Buyer Resources (59) Community News (37) Home and Family (36) Home Maintenance Tips (14) Homeowners (34) Homes for Sale | Listings (25) Indianapolis Things to Do (62) Indy Photo Spot (5) Lifestyle Communities (4) Local Indy (42) Market Statistics (87) Mortgage News and Info (49) Parks and Recreation (12) Random Thoughts (19) Real Estate News (73) Real Estate Terms (15) Relocation Tips (8) Seller Information (41) Upcoming Events (3)

Posts By Month

Blog Roll

Homes in Hendricks County
Grab Our RSS Feed
New Listing Alerts

Be one of the first to know when new listings matching your criteria hit the market.

Get New Listings
Relocation Guide

Find your next home and learn about neighborhoods, current market statistics, and local schools.

Free Relocation Guide
Free Market Analysis

Our free service provides you with a detailed estimate of your home's current market value.

Get a Free Market Analysis