Many Home Loan Modifications are in Default, Again

The U.S. Treasury Department reports that approximately 46% of homeowners who received loan modifications in 2009 under the Troubled Asset Relief Program (TARP) are once again in default. According to a TARP special inspector report, one-third of homeowners who received TARP loan modifications have stopped paying their loans. The inspector finds that many of these “modified” loans under TARP only reduced the monthly payments by a mere 10% or less. However, loan servicers are paid $400-$1,600 for permanent loan modifications.

The special inspector reports that over 10% of the 865,000 homeowners who received loan modifications are currently 1 or 2 payments behind. More than 306,000 homeowners have re-defaulted as of the end of April. The report finds that the small reduction in monthly payment coupled with the existence of overall personal debt contributed to this new round of defaults. Additionally, as many as 9.7 million out of 75 million households are “upside-down” in home value, meaning the home is worth less than what is owed on its mortgages.

Bankruptcy may provide an answer to this troubling news. In Chapter 13 bankruptcy, an entirely unsecured second mortgage may be stripped away and discharged. New home loan modification programs are also available during bankruptcy to further reduce principal and get your home “right-side up.” Bankruptcy under Chapter 7 or 13 can permanently discharge pesky credit cards and medical bills, and restructure secured debts like car or home payments.

Bankruptcy can help you permanently solve your debt problem. In many cases, reducing or discharging personal debt makes it possible for a family to afford a home mortgage payment without living in constant fear of default. Call today and speak with a qualified bankruptcy attorney to discuss your financial options.