Loan modification recipients in danger of defaulting

As it turns out, the government’s plan to bail out homeowners who found themselves underwater on their mortgages is a failure.

A new report by the Special Inspector General for the Troubled Asset Relief Program has found that the program originally touted as a lifesaver for qualified homeowners has instead become a liability that may be pushing down those homeowners.

Most borrowers did not receive any assistance

The Home Affordable Modification Program, known as HAMP, was first offered in early 2009 to help borrowers avoid foreclosure. It debuted with much fanfare and came with money for nonprofits to help applicants fill out forms. The reality is that most homeowners, even after going through an extensive application process that lasted several months, did not receive any assistance.

The modification program was supposed to help up to four million homeowners but less than one million borrowers received permanent loan modifications, which many are now in default, according to the report. Investigators determined that homeowners who had participated in the modification program the longest are the ones who are defaulting at the highest rates, up to 46.1 percent.

A high number of defaults

According to the report, 862,000 homeowners are currently benefiting from loan modifications, but  312,000 have defaulted. The report did not specify why so many borrowers were defaulting but noted that many of those modifications will be adjusting to higher interest rates, which is likely to lead to more defaults.

Only a small percentage of homeowners who were offered loan modifications received a reduction of the principal remaining on their loan.