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Mortgage Bailout - Is It Stopping Foreclosures?

A government program that subsidizes lenders who provide loan modification and possibly refinancing of problem mortgages provided a ray of hope for troubled homeowners.  It was said that 8-9 millions homeowners could qualify for this help to avoid foreclosure.  But is it working?

To date, no numbers have been released and reports seem to be growing that the program may not be working as planned.  Some owners have complained of lack of specific information from their lenders and others have found no help available.  Diagnosing specific problem areas with the new program is complicated by the reticence of owners to publicize their problems or even admit they have asked for help and been declined.  Clearly, administration of this legislation meant to help those with problem mortgages needs improvement quickly if the program is to work for a significant number of people.

The main goal of the refinance section of the mortgage bailout is to help those owners who are "under water" with homes now worth less than the mortgage amount due on them.  However, this help is limited to homes where the mortgage is not more than 5% more than the property appraisal.  This eliminates many areas of the country where property values have fallen significantly lower in the past year.

Reports of success in obtaining these newly refinanced loans has been lacking and no numbers have been produce to show the number of owners who have applied or whether any loans have been renegotiated. 

The second part of the program - loan modification - is meant to help homeowners who are possibly delinquent one or two months but are not facing current foreclosure actions.  The modification appears to be at the discretion of the lender for the most part and may be a suspension of payments for a few months, reduction of interest rate on the loan, extending the mortgage over a longer period to decrease payments and perhaps other "creative" changes.

Homeowners are finding it difficult to reach their lenders or to get firm answers on what they may qualify for in the way of help.  Loans must be Fannie Mae or Freddie Mac approved and that limits the help available to less than 50% of the mortgages outstanding.

There also seems to be confusion among lenders as to what constitutes qualification.  Phone calls to several lenders resulted in answers that differed widely in application of these programs meant to help homeowners. 

For example, with the loan modification program, lenders are to reduce monthly payments to no more than 31% of the homeowner's gross income.  Some lenders stated that percentage included property insurance, property taxes and second mortgages - others said they considered only the principal and interest of the loan.

The bottom line is we seem to have a mortgage modification program designed to help homeowners that will take time to sort out and apply.  Not good news for those struggling monthly to keep their homes.