Permanent Mortgage Mods on the Rise. But Does it Matter?

It's still a relatively small number, but new figures from the U.S. Treasury and the Department of Housing and Urban Development seem to indicate that it may be getting a bit easier for some homeowners facing foreclosure to get a permanent mortgage modification. Permanent mods have been viewed as sort of the holy grail, if you will. But as I shall explain, that's not really the case.

As of January, the latest figures available, 116,000 homeowners now have permanent mortgage payment reductions -- about double the figure from December. Another 76,000 permanent mods are imminent, waiting on just "the borrower's signature," according to a HUD news release.

That has fed officials crowing."With nearly one million homeowners paying less each month and the number of permanent modifications steadily rising, HAMP (Home Affordable Modification Program) is doing the job it was designed to do," says Phyllis Caldwell, the Chief of Treasury's Homeownership Preservation Office.

Of course, the announced goal of the program was to provide 3 to 4 million homeowners with long term mortgage relief. So far, according to HUD, about 1.3 million trial modifications have been offered, meaning the vast majority of modifications remain only temporary in nature, lasting just three months. The 116,000 permanent ones are a drop in the vast foreclosure bucket.

While it is understandable that the federal government would want to crow about any increase in mortgage modifications, the problem is, there is lots of evidence that they tend not to work over the long term. That's because while interest payments may be reduced, principal amounts seldom are. The relief is, therefore, only temporary in nature for many.

Without a program that actually increases the homeowners equity in their property (by lowering principal), many real estate and housing experts remain doubtful that the current loan modification program will have long term success no matter what the number of permanent mods might be. Paying lower interest rates over a longer period of time only pushes the problem -- foreclosure -- down the road. It doesn't really solve it!

Charles Feldman is a journalist, media consultant and co-author of the book, "No Time to Think: The Menace of Media Speed and the 24-hour News Cycle." He has written about real estate issues for several years.
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