500K Homeowners helped by Loan Modification

The Obama administration announced earlier this month that it had achieved its goal of helping 500,000 troubled homeowners with trial loan modifications under its Making Home Affordable Program, part of a nationwide effort to stem foreclosures.

The report came as a number of senior House representatives announced that they were backing the $8,000 tax credit for first-time home buyers, strengthening claims that federal support is still essential to reviving the real estate market.

The number of people joining the loan modification effort is rising faster than that of new foreclosure starts, according to Treasury Secretary Timothy Geithner. However, he added, the number of at-risk homeowners is still "unacceptably large".

The Making Home Affordable program, first launched in February, allows eligible borrowers who are at risk of default to negotiate with their lenders for more affordable terms, often by lowering payments or refinancing to a 30-year fixed-rate mortgage.

A few experts have pointed out that most of the borrowers are still on trial modifications. According to independent housing economist Thomas Lawler, the question remains as to whether the 500,000 qualified borrowers will pass the trial period.

Bank of America executive Steve Bailey expects at least 50% of the trial modifications will go on to become full modifications, taking into account the changes the government plans to implement in the program.

Borrowers on the trial period must stay current on the new terms for three months and submit supporting documents, such as pay stubs and tax returns, in order to qualify for a permanent loan modification. Mortgage executives have reported that many borrowers have not or only partially fulfilled these requirements.

Among the four biggest mortgage servicers, Citigroup Inc. has started the most trial modifications, reworking loans for 33% of their eligible borrowers. J.P. Morgan Chase & Co. comes in second at 27%, while Wells Fargo and Bank of America are trailing at 20% and 27% respectively.

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