While we have seen temporary loan modifications (90-day loan modifications or trial modifications) soar there has been little permanent relief for troubled homeowners. Only 4% of troubled homeowners have been approved for a permanent loan modification per the Treasury Department this week. This news has prompted the Obama administration to start pressuring servicers to do more for stuggling homeowners. Bank of America has only converted 98 homeowners into permanent loan modifications versus 4,000 from JP Morgan Chase. However, those are only a small fraction of applicants who are trying to get moved from trial loan modification to permanent.
Although foreclosures dropped from October to November housing experts expect foreclosures to ramp back up in the coming months. Even if the Treasury succeeds in getting more homeowners into permanent modifications a larger question remains. How many modified borrowers will go delinquent after being modified? More than 50% have defaulted on their modified loans so the success rates have been dismal. Why? Because negative equity is not being addressed. The programs implemented are addressing the wrong issue. The issue is the historic NEGATIVE equity people have in their homes. Negative equity is very tempting for homeowners to just walk away even if they can afford their home. Twenty percent of homeowners are underwater and no servicer is reducing principle to address the "real" issue. Most experts agree the foreclosure program rolled out by the administration is destined to fail because it does not address negative equity.