The new government loan modification program has totally changed the viability and usefulness of loan modifications. It used to be difficult for most homeowners to get a modification on their mortgage because of the unreasonable requirements lenders and financial institutions place on them. And beyond that, before 2008 there was very little demand for modifications — so no need for any sort of reform. But with the ongoing housing and economic crisis, homeowners in financial hardship are are left with little choice.
The government loan modification program, put into effect in March of 2009, has made any homeowner in financial hardship eligible to receive modification on their mortgage. This is significant, because prior to the program (and technically the FHA program of 2008), lenders had full control over their modification requirements, making it extremely difficult for borrowers to receive the mortgage modifications that they needed.
Aside from the more realistic requirements the government loan modification package provides, there are also incentives for lenders to accept request for modifications.
The government has set aside $75 billion dollars in incentives to give to lenders for their cooperation. The bottom line for lenders is that a modification means losing money, and the incentives are to cushion that blow. The incentives are mainly provided on a yearly basis based around how many homeowners they give modifications to successfully make every monthly mortgage payment.
The downside to the main incentive is that 89% of homeowners who receive a modification do not even make their first payment after their loan has been modified, making lenders still wary to accept applications. However, lenders have started fighting back by bringing class-action lawsuits to the table to weigh things in their favor. This has proven especially effective with Countrywide — which has greatly increased its approval rate in the face of a possible lawsuit.
The government loan modification program not only covers loan modification, but also refinancing. The refinancing requirements for all lenders have been overhauled, making them easier to receive, though not as easy as modifications. There are also incentives for first time homeowners in order to boost the housing market.
All in all, the government loan modification program is estimated to assist four to five million homeowners across the country — and it is well on its way to meeting
