A few years ago ‘mortgage modification’ was a word on the minds of millions of homeowners. Today in an improving housing market, the need for such modifications to save borrowers in danger of foreclosure is shrinking. But according to the Federal Housing Finance Agency , those who do still need help are finding fewer options available.
There were 13,200 permanent loan modifications made through Fannie Mae and Freddie Mac in February of this year, down 3 percent from the month before. Of those mortgages, 49 percent received only an extension of their loan terms – a 20 percent increase from last year – while just 18 percent received principal forbearance.
With home prices jumping dramatically in the past two years, homeowners in most parts of the country have regained a significant amount of equity in their homes, reducing the number of borrowers who are ‘underwater’ or owe more on the mortgage than their homes are worth. Having more equity means more individuals are able to sell if they need to get out or are unable to make their payments. Because the risk of foreclosure on a widespread scale, lenders are being less generous in their bailouts with those still seeking help.
“As the market improves, the number of borrowers who are in deep distress goes down, so the average modification tends to get lighter because they don’t need to provide as much relief,” said Jim Parrott, a senior fellow at the Urban Institute in a MarketWatch article.
So for those still struggling to make their mortgage payments, especially in states like Nevada and Florida where a majority of the remaining underwater homeowners reside, they are most likely to get their payments lowered through having their mortgages stretched out to 40 years from 30 years. The days of reduced principal and interest rate reductions have essentially passed. While not the most helpful solution, borrowers that receive mortgage modifications with extended terms can always refinance into better loans down the road.