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Research takes look at recent loan modification efforts

Many Florida residents and others elsewhere in the country experienced financial hardships during the recent housing crisis. While concerns about losing their homes were prevalent during this time, several efforts were made by national government agencies to help curtail the losses. Government-sponsored enterprises, such as Fannie Mae and Freddie Mac, were asked to reduce loan principal balances, while other programs like the Home Affordable Modification Program were established. A national financial services company recently released a report that assessed the effectiveness of the various loan modification efforts.

The study reviewed how mortgage payment reductions affected defaults, among other scenarios. Roughly 450,000 consumers who had gone through a loan modification from July 2009 to June 2015 were surveyed. The data showed that defaults were reduced by 22 percent when consumers received a 10 percent reduction in their monthly payment.

However, there was no significant impact when the principal was reduced. There was not a noted difference in the default rate between those consumers who received a principal reduction versus those whose monthly payments were reduced or were given a lower interest rate. The survey also showed that those who got payment reductions did not change their consumption habits, regardless of the type of modification they received.

Based on the data, researchers strongly support adding options for modifications that would keep residents in their homes. These options may include deeds-in-lieu or short sales. It is also important to create policies to help homeowners avoid defaults by establishing emergency funds to help with unanticipated expenses.

A loan modification is one avenue that a Florida resident may pursue in an effort to remain in his or her home. To determine if this is the right course of action, it would be helpful to contact an experienced bankruptcy attorney. A knowledgeable lawyer will work with clients to develop a plan that helps them keep their homes and avoid foreclosure.

Source: mortgagenewsdaily.com, "Looking Back at Loan Mods: What Worked, What Didn't, and What Can We Learn?", Jann Swanson, Dec. 11, 2017

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