Chase has offered more than 900,000 mortgage modifications to struggling homeowners since the beginning of 2009 through a wide range of government and Chase initiatives to address the housing crisis.  “We have worked directly with homeowners as the economy has hit them far deeper and for far longer than they expected,” said Charlie Scharf, head of retail financial services at Chase. “We continue to look for creative and effective ways to help them stay in their homes, whenever possible.

Loan modification programs have been helping some homeowners avoid foreclosure, but not everyone is getting mortgage relief from the government.  Many homeowners are tired of being turned down for refinancing and the government modifications do offer new opportunities for payment relief.  Nearly half of the 1.3 million homeowners who enrolled in the Obama mortgage relief program have fallen out.  The program is intended to help those at risk of foreclosure by lowering their monthly mortgage payments.

Friday’s report from the Treasury Department suggests the $75 billion government effort is failing to slow the tide of foreclosures in the United States, economists say.  More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year.  “The government program as currently structured is petering out. It is taking in fewer homeowners, more are dropping out and fewer people are ending up in permanent modifications,” said Mark Zandi, chief economist at Moody’s Analytics.  Besides forcing people from their homes, foreclosures and distressed home sales have pushed down on home values and crippled the broader housing industry. They have made it difficult for homebuilders to compete with the depressed prices and discouraged potential sellers from putting their homes on the market.

Obama Mortgage Relief Helps Some Homeowners

Approximately 630,000 people who had tried to get their monthly mortgage payments lowered through the government loan modification program have been cut loose through July, according to the Treasury report. That’s about 48 % of the those who had enrolled since March 2009. And it is up from more than 40 % through June.  Another 421,804, or roughly 32 % of those who started the program, have received permanent loan modifications and are making their payments on time.

RealtyTrac reported that the number of U.S. homes lost to foreclosure surged in July to 92,858 properties, up 9 % from June. The pace of repossessions has been increasing and the nation is now on track to having more than 1 million homes lost to foreclosure by the end of the year. That would eclipse the more than 900,000 homes repossessed in 2009, the firm says.  Lenders have historically taken over about 100,000 homes a year, according to RealtyTrac.

Zandi said the government effort will likely end up helping only about 500,000 homeowners lower their monthly payments on a permanent basis. That’s a small percentage of the number of people who have already lost their homes to foreclosure or distressed sales like short sales – when lenders let homeowners sell for less than they owe on their mortgages.  Zandi predicts another 1.5 million foreclosures or short sales in 2011.  “We still have a lot more foreclosures to come and further home price declines,” Zandi said. He said home prices, which have already fallen 30 % since the peak of the housing boom, would drop by another 5 % by next spring.  Many borrowers have complained that the government program is a bureaucratic nightmare. They say banks often lose their documents and then claim borrowers did not send back the necessary paperwork.

The banking industry said borrowers weren’t sending back their paperwork. They also have accused the Obama administration of initially pressuring them to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.  Obama officials dispute that they pressured banks. They have defended the program, saying lenders are making more significant cuts to borrowers’ monthly payments than before the program was launched. And some of the largest mortgage companies in the program have offered alternative programs to those who fell out.

Homeowners who qualify can receive an interest rate as low as 2 % for five years and a longer repayment period. Those who have successfully navigated the program to reach permanent modifications have seen their monthly payments cut on average by about $500.  Homeowners first receive temporary modifications and those are supposed to become permanent after borrowers make three payments on time and complete all the required paperwork. That includes proof of income and a letter explaining the reason for their troubles. But in practice, the process has taken far longer.  The more than 100 participating mortgage companies get taxpayer incentives to reduce payments. As of mid-June only $490 million had been spent out of a potential $75 billion the government has made available to help stem the wave of foreclosures

When a real estate professional says a home is under-water, they are referring to mortgage that is greater than the home’s value.  Americans continue to struggle to make their mortgage payments on time and many homeowners have discovered that their property’s value has declined so significantly that their mortgage loans are under-water.  

Under-Water Home Mortgages

Zillow published a recent report that indicated that more than 20% of U.S. mortgage loans are currently underwater.  This is one of the reasons why so many banks are extending loan modification plans in such a great volumes.  The mortgage lenders are focused mostly on modifying mortgages for homes in these distressed states.  Besides, very few of borrowers in Arizona, California, Florida and Nevada qualify for fixed rate mortgage refinancing.

Miami-Fort Lauderdale property values saw a year-over-year decline of 15.2%, while values in Phoenix, Arizona, fell by 11.8 %. Despite the high percentage of negative equity, the 2^nd quarter rate 21.5% is actually lower than from the 1^st quarter figure of underwater home mortgage loan, which was reported at 23.3 %. However, some areas that benefit from both state and federal tax credits have seen home values increase, the report shows. For example, the state of California saw values rise by 27.8 %, marking five consecutive quarterly increases.

Economists continue to examine the devastation that underwater mortgage loans have influenced.  They like this study because it remains a strong indicator of forecasted home foreclosures. In addition to not being able to afford home loan payments, some homeowners who are unable to modify their mortgages are strategically defaulting on their home loans.  This means that they are walking away from their homes and letting the bank repossess their property.  “It is the paramount challenge facing housing markets,” Zillow’s chief economist Stan Humphries told Reuters. “We already have had record levels of foreclosure and, combined with high unemployment, negative equity is very toxic to the market.”

Though fewer Americans are strategically defaulting on their mortgage loans, foreclosure rates continue to increase with RealtyTrac reporting a first-quarter foreclosure rate of 1.65 million. Analysts project that the number of mortgage defaults, repossessions and scheduled auctions are likely to reach 3 million by the end of the year

Homeowners continue to report struggles with the loan modification process and with so much mortgage relief talk around the nation many consumers want to know what is going on.  According to former Ditech.com executive, Jeff Morris, “Many homeowners simply do not have enough income to justify the lenders extending a loan modification.”  Morris continued, “If a borrower can’t document their income at all, it is very unlikely that the banks and lending companies will approve them for a loan modification.  Morris made it clear that borrowers do not need to be under the 50% Debt to Income Ratio (D.T.I.) like they do to qualify for a mortgage refinance.  He said that D.T.I. from 70 to 95% is pretty common for loan modification agreements this year. Alarming Numbers on Foreclosure Crisis
More than 1 million homes expected to be taken over by mortgage lenders in 2010, yet thousands of homeowners report relief from the loan modification that they were approved for. Second mortgage lien stripping has also been a common practice for bankruptcy lawyers. Getting approved for a second mortgage modification has become trickier than many borrowers had hoped.  Another problem many borrowers find is that the investors are usually different for their first and second mortgage.  This makes the second mortgage modification process.