Are Loan Modifications Really Saving the Economy?

According to reports from the United States Department of the Treasury, about 63,000 homeowners received loan modifications during July 2013 (which is the last month statistics are available). This brings the total for 2013 to 519,000 loan modifications, a number which dwarfs the number of foreclosure sales (378,000) that were reported up to the same point. All in all, this totals 6.6 million permanent loan modifications since 2008. According to analysis from financial firm Keefe, Bruyette, and Woods, loan modifications are playing a large part in strengthening today's housing market. 

It's clear that loan modifications have done plenty to improve housing statistics, but these numbers conceal serious issues that are often glossed over by pundits and the national media. "In the first years of the foreclosure crisis, banks made it all but impossible for homeowners to obtain loan modifications on their own," said David Ramos, mortgage modification expert at Amerihope Alliance Legal Services. "Since the government has created new laws to force banks into modifications, banks have followed those regulations, but have found new ways to get over on desperate homeowners," Ramos continued.

The Truth Behind the Numbers

According to Ramos, in the first years of the foreclosure crisis, banks would go to extreme measures to delay modifications and force homeowners into foreclosure. As a matter of fact, this action (or inaction) on the banks' part is currently the subject of a large class action lawsuit that has been filed by former bank employees. Things changed when the government got involved, but the changes haven't been as drastic as the government hoped. Homeowners have been receiving more modifications since new laws were put into place, but the modifications they've received pale in comparison to what they could, and ethically, should be giving to homeowners. "Sometimes, banks are more or less saying 'you either take this (inadequate) mod, or we'll foreclose on you'; that's what it boils down to," said Ramos.

Predicting the Future

So what does this bear for the future? "I predict that there will be a mini-foreclosure crisis in several years," warned Ramos. "People are getting inadequate modifications with terms that aren't much different from their original unfair mortgage terms, and a lot of homeowners will end up defaulting as a result." There is a bright side for homeowners who need loan modifications, though. Ramos recommends that homeowners in default turn to an experienced foreclosure defense law firm for help, especially one that offers loan modification as an ancillary service. That way, homeowners get "the best of both worlds," meaning foreclosure defense and loan modification help, and "will stay out of further (foreclosure) trouble for good."

So who are loan modifications really helping- the government, banks, or homeowners? Let us know your opinion in the comments section below.