As the Ministry of Finance and the Ministry of Housing and Urban Development with loan servicers to discuss how the pace of loan relief in the form of loan modifications, the reasons / excuses for its slow rollout Quicken by industry watchers and economists presented. Faced with increasing frustration on all fronts, the objective of management, lenders and servicers across the billions of dollars in incentives has already promised to motivate modify home loans.

According to some reports, the initiatives of the government before the country’s mounting foreclosure issues are bogged down, because banks and other lenders to make more financial incentive in many cases, borrowers lose their homes to foreclosure need to modify existing mortgages than their step. While ensuring the political decision-makers the needs of their constituencies and will continue for more and faster home loan modifications crowd, some researchers say that foreclosure can be more profitable, and is a major reason for the slow pace of loan modifications, such as the administration’s Home affordability and stability plan (HASP) goes into the sixth month. The argument is advanced by these researchers that three types of homeowners who become delinquent on their payments, only one of the categories homeowner is profitable for banks face loan modifications. The categories are divided into three approximately equal to home owners and describe in very different situations:

1) The first group is the one that researchers believe that the execution of a loan modifications actually makes sense. These are borrowers with consistent income and employment, where mortgage payments out of reach because of interest or re-set the payments are delayed. A reduction of the payments back to levels that borrowers fit a budget loan modification is a viable solution for both the lender and the homeowner. This category of borrower works best for the lender because the concessions necessary to fix the problems of homeowners are relatively small.

2) The second category includes those who are likely to become delinquent again after the completion of a loan modification. These homeowners can based job related issues such as major cuts in working hours or the Commission’s positions, which pay no longer what they were when the loan was originated. Other questions may remain in the structure of the mortgage or a home that so much value that it has lost little motivation for the owners in the home are. Researchers can say that the lenders are reluctant to help these borrowers, since delaying the foreclosure process more expensive.

3) The members of the third group are those who were delinquent but then catch up by finding new employment, the sale of other assets, borrowing money from friends and family, or by the victim. As the second category to draw reluctant lender loan modifications with this group but for a different reason, if the homeowner their way out of the situation to their own work, it makes little sense to reduce their payments, even it is for a short time. “These are the people who get a second job, borrow from their family to keep,” said Paul S. will, a senior economist at the Federal Reserve Bank of Boston and author of the report. “… From a cold-blooded profit maximization standpoint, these are the people, the banks will help the least.”

The report of the Federal Reserve Bank of Boston has received attention from all sides because of his negative assessment of the prospects for widespread home loan modifications. A deeper look at the data presented in the report that provides an explanation, in part, for its dismal findings. One of the biggest problems with the loan modifications in the study is that only three percent of their monthly payments reduced delinquent debtors, those who had failed at least two payments. Lenders on the granting of changes to those that fell outside the “sweet spot” of hardship cases passed, probably, or re-default because of too much hardship or fix the problem because they themselves do not learn enough. The time frame of the Boston Fed’s report had much to do with the negative perception of the loan modifications. Conducted in 2007 and 2008, the economic conditions were just starting, contract, may Lulling lender in an attitude that the economy would right itself in a short time. The Bush administration, banking, industry and observers agreed that the mortgage meltdown would be contained to the riskiest of the subprime borrowers, and that any economic contraction would be short-lived. After all, housing was never brought before the economy into a prolonged recession. The reluctance to make changes to those problems are likely to have the belief that the economy would return to normal now and provide ample opportunity for those correct, based fallen behind. The longevity and depth of the current recession is to underestimate the time of the report and it is a virtual certainty that can in today’s environment, the number of homeowners who set down again, borrow money or sell assets to make up shrunk considerably .

Another aspect of recent research reports, the true two years ago was no longer applicable, that the sale of foreclosed properties at auction was a foregone conclusion. With first 5 million foreclosure filings in the first half of the year and added another 2 million expected by year end, the supply of foreclosures goes far beyond the level of demand for them. Whether because of the sheer number of foreclosures or reluctance to properties take back inventory, the normal schedule for foreclosures have been carried out by three months to the point where have homeowners notices of default received, but continue to live in their homes for months extended end in a situation known as “foreclosure limbo. Regardless of what lender to foreclose on their tendency to say, they are certainly not acting on it.

Another aspect of the Boston Fed’s report is striking that the quality of the loan portfolio changes appear in the study as very poor. If 97% of the modifications that were not lower the monthly payments the homeowner to fight, it is no wonder that the re-default rates were so high. If a homeowner had problems that their payments and keep up the same level can not be more than aid. When the Federal Deposit Insurance Corp. took over the failure of Indy Mac Bank last year, the FDIC began to change troubled mortgages held or serviced by the company. Richard Brown, FDIC’s chief economist said: “The agency expects that up to 40 percent of borrowers to re-default.” Even at that rate, he said, the modification program is more profitable than doing nothing. “The idea that 30 to 40 percent re-default a failure, a program is, is wrong,” said Brown.

Mr. will, the Boston Fed, has more to say on the results of the study: “… the government could program a multiple of the number of seriously delinquent borrowers will increase modifications to defend. But so few people had ever changed their credit, that also a dramatic increase of the share would still only a small fraction of the troubled borrowers. We are still not a program that a large number of foreclosures will stop, “he said.” We are talking about a program that the edges are to help more people. It is unlikely that we will see a sea change. “The gap between the two sides of the argument seems to be what kind of concessions are based in the modifications studied. In the case of the Boston Fed, a tiny piece of the executed modifications lowered payments and failed a large percentage of them. In the case of the FDIC and other modifications that the payments have decreased considerably and include principal reductions had solid success rates. What is important, the number of successful amendment that basically cuts can play an important role for the family to play in their home.

What we need is an honest assessment of what works and what does not. Pulling out of the worst of the changes and say they do not work looks more like a negotiating mandate move by the banks, the government incentives to get more than anything else. While the banks and the management is waiting on who blinks first, homeowners losing their houses, the spectators of a board game that is ruined millions of lives.