Over the last three years many Americans are facing foreclosure because of being upside down on their home mortgage. The government’s solution to the problem was creating loan modification programs. These mortgage modification programs don’t seem to be working too well as only approximately 5% are even approved. It seems that there might be too many hands in the cookie jar to make these loan modification programs work. The basic idea of why the program was created was to stop foreclosure and keep the homeowner in their home. Unfortunately, the number of loan mods that have been approved is not enough to stop this tsunami of foreclosures that are expected to hit.
It’s become a common topic of why the loan modifications were working. With so many people involved in processing one, it’s no surprise that they don’t ever get approved. In these complex transactions, there is a homeowner, a mortgage servicer, a securitized trust, and a mortgage insurance company, each having their own set of rules to play by. It would be a lot easier if the debtor could walk in to their bank that held the paper and agree upon a loan modification.
One problem that the banks are facing is many of the debtors are burying their heads in the sand, while getting behind on their house payments and other bills. Starting out the process when the debtor is already upside down and possibly in the beginning stages of foreclosure is setting the debtor up for failure. From the debtor’s point of view, the bank has an agenda also. Their agenda is not giving up part of their collateral or lowering an interest rate. With both parties at opposite ends of the spectrum and a bunch of players in the middle it’s easy to see that this entire program is a setup for failure.
A better solution for all this craziness would be for a debtor to consult a bankruptcy attorney and see if they qualify for Chapter 7 bankruptcy or even a Chapter 13. The bankruptcy attorney will have the power of the legal system to negotiate with the lender and stop the foreclosure. Using bankruptcy to stop foreclosure will give the debtor the power back.