500,0000 Loan Modifications: Nobel Prize Not The Only Target Obama Hits Early

While everybody is deciding if Obama deserves the Peace Nobel prize on effort and good intent or not, another achievement is not receiving half as much attention. This month (October 09) more than 500,000 troubled home loans have joined a trial modification program, the Obama administration announced this Thursday.

Trial loan modifications last around 3 months and are a requisite to qualify for a final loan modification. If the homeowners pay all their mortgage payments on time they qualify for incentive bonuses and the loan modification.

The short term goal was to reach 500,000 by November. The loan modifications must meet certain requirements to qualify for the program. For instance the monthly payments must be reduced to at least 31 percent of the homeowner’s monthly pre-tax income.

Reports show that 16 percent of troubled homeowners, defined as at least 2 months delinquent have qualified for a loan modification.
Even though these figures are promising and Federal officials claim they are on track to meet the long term goal of helping 3 to 4 million borrowers in 3 years it is still early days to claim victory on the credit crisis.

Many experts accuse the program of being a good medicine for the wrong illness. They claim the problem with the American economy is a credit crisis not a mortgage crisis.

The fact the target of loan modifications was reached doesn’t mean it is easy to get one. Among the local success of the loan modification trial program performance among banks varies widely. The government is continuing to name and shame banks that are not fulfilling the expectations set against them. The percentages of eligible loans that are offered a trial modification in the major banks is as follows:

Citigroup: 33 percent
JPMorgan Chase: 27 percent
Wells Fargo : 20 percent
Bank of America: 11 percent.

JPMorgan Chase and Wells Fargo have increased their percentage heavily while Bank of America remains the worst major bank at providing loan modifications.The main problem with the program that is causing this variety of success rates among banks is that the loan modification program that encourages banks to make the loan modifications happen has no teeth. If the bank decides not to modify loans they should there is nothing specific the government can do. This of course does not promote banks going overboard when trying to meet their loan modifying targets.

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