Mortgage Modifications Top 3 Million

How many borrowers on the brink of foreclosure received some kind of home mortgage modification from their loan servicer since 2007?

More than 3.7 million, according to the latest tally from Hope Now, a private-sector coalition of major loan servicing companies and nonprofit counseling organizations.

That's a head-spinning number, especially since most of the press coverage on mortgage modifications has focused on a much smaller number: the roughly half a million borrowers who went through the federal Home Affordable Modification Program (HAMP).

Where did all these other modifications come from?
It turns out that, in addition to the Home Affordable Modification Program, another 3.2 million troubled loans have received "proprietary modifications" from loan servicers that are structured according to the banks' own rules. As of August, loan servicers are now averaging well over 100,000 of these completed proprietary mortgage modifications a month -- that in addition to the roughly 30,000 modifications a month made through the Home Affordable program.

What kind of loan modifications do these borrowers receive? And how many of these borrowers have kept up with their payments and avoided defaulting again? HousingWatch contacted Hope Now to find some answers.

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A Makeover for Loan Mods

The specifics of proprietary loan modifications vary from lender to lender. Until recently, many proprietary loan modifications were simply agreements for the borrower to start paying again, with the amount owed from missed payments added to future mortgage payments. That meant that borrowers often had larger monthly mortgage payments after modification than they had to pay before.

That changed in 2010. Loan servicers now regularly lower interest rates and extend loan terms when they modify mortgages, which makes it possible to lower borrowers' monthly payments, even if they have missed several payments.

"In August, 91 percent of all modifications had lower interest and principal payments," says Faith Schwartz, adviser and the founding executive director for Hope Now. "A year ago, most borrowers had a higher payment."

The change has had an immediate effect -- the newest generation of modified mortgages are surviving better, and are half or even a third as likely as earlier modifications to slip back into default. "At three months after modification, 11 percent of the 2010 modifications were seriously delinquent, compared with 20 percent for 2009 modifications and 32 percent for 2008 modifications," according to the latest Mortgage Metrics report from the federal Office of the Comptroller of the Currency (OCC).

Hopefully this means that the new generation of modified mortgages will also survive better in the long term. There's nowhere to go but up: Of the 421,000 proprietary mortgage modifications completed in 2008 only about a quarter were current in their payments as of the second quarter 2010, according to the OCC.

Free Mortgage Counseling

To help give mortgage modifications better odds, Hope Now members provides free mortgage counseling. Hope Now is a private sector alliance formed in 2007 to address the foreclosure crisis. It includes most major private sector players in the mortgage business. But Hope Now also includes more than a dozen national nonprofit housing organizations that have provided housing counseling for decades, like NeighborWorks America, and respected local groups like the Boston-based Citizens Housing and Planning Association.

"A homeowner who works with a counselor usually gets a better new payment than a homeowner who doesn't," says Douglas Robinson, spokesperson for NeighborWorks. And as the OCC report shows, the lower the new mortgage payment, the lower the odds that a modified loan will default again.

More than four million people have received help through Hope Now's "Homeowner's Hope Hotline," run by the Homeownership Preservation Foundation: 888-995-HOPE.

Hope Now's loan counselors make sure borrowers include all the relevant financial information in their application for a loan modification -- from credit card and medical debts to student loan payments. That helps borrowers get the best loan modification available. (Also see AOL Real Estate's guide: "Foreclosure Help: What a Housing Counselor Can Do.")

Hope Now also has created LoanPort, an online system to collect and store documents that loan servicers need to modify a mortgage. Counselors work with borrowers to collect these documents and scan them into the LoanPort system. Banks can then access the documents on a secure website. The system saves on the cost of delivering the document to the servicer. Also, because the documents are stored on the web, it is impossible for the servicer to lose them.

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