Mortgage Modification Program is Like ‘Fighting a Forest Fire with a Squirt Gun’

Incredibly high rates of foreclosure across the nation have been crippling the U.S. housing market for the past year, and both the current and previous Administrations have tried to stem the tide of these defaulting mortgages without much success. Under President Obama, the Home Affordable Modification Program has asked mortgage servicers to pretty please modify the loans of struggling homeowners so they can keep their houses. So far, though, the initiative has been largely ineffective.

As of December 2009, there were 853,696 borrowers receiving modifications, approximately 25 percent of all eligible homeowners. And while the number of those whose trial modifications have been made permanent (with lower payments or reduced interest rates) more than doubled in the latest month (from 31,382 in November to 66,465 in December), it simply won’t be enough.

“It’s marginal progress,” said Washington, D.C.-based mortgage industry consultant Howard Glaser in a Reuters article. “It’s helping the borrowers who have received the modifications, but systemically, the program is insignificant. With the wave of foreclosures ahead, it’s kind of like fighting a forest fire with a squirt gun.”

And there is plenty more fuel for the fire on its way. Foreclosure data tracking company RealtyTrac recently released figures showing that foreclosure filings increased 21 percent in 2009 to 2.82 million. It predicts that there will be 3 million in 2010. As the company’s CEO James Saccacio says, in the long term “a massive supply of delinquent loans continues to loom over the housing market.”

So what’s to be done? The American government has bailed out many of the country’s major mortgage lenders and in return it expects them to feel morally obligated to help out the American people when it comes to foreclosures. So far, most banks are not demonstrating any such debt of gratitude. And without compulsory means, I don’t think it’s likely that we’ll see much of a change in the Home Affordable Modification Program numbers. And who knows? Maybe we shouldn’t hope to. It seems the new trend of thinking for some analysts is that massive foreclosures are the only way to get the housing market back to equilibrium, in the best interest of both homeowners and lenders. I don’t know if that’s true, but I still don’t think the government can or will stop the coming wave of 3 million foreclosures this year.

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