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Colorado, nation see fewer trial loan modifications

The good news is that there was a 27 percent jump in the number of homeowners in Colorado who received permanent loan modifications under a federal program in April from March. The bad news is that 18 percent fewer homeowners entered the Home Affordable Modification Program, or HAMP, in April from March, as new rules are about to go into effect, shows a report released on Monday.

There are currently 8,932 Colorado homes in active trials under HAMP, down from 10,929 in March, according to a U.S. Treasury Department report. There are 4,355 homeowners with permanent loan modifications last month, compared with 3,422 in March. The nation also showed an 18 percent drop in trial loan modifications under HAMP, the $75 billion Obama Administration program designed to keep people from losing their homes in foreclosure,with 780,922 in the program in March, compared with 637,353 in April.  Typically, lenders will lower mortgage rates, although some have also started reducing principal amounts of the loans, too. Borrowers who have received permanent modifications have seen the median price of their mortgage payment drop by 36 percent, which equates to more than $500 per month.  The trial periods are required before a lender can permanently lower mortgages. A drop in the active trial modifications means that the pipeline of people who may benefit from lower mortgage rates is reduced. Not only is there a drop in the trial period, but the number of people kicked out of the program has skyrocketed. Nationwide, 277,640  trial loan modifications were canceled  in April, about 79 percent more than the 155,173 cancellations in March.

New rules kicking in June 1

In order to comply with Treasury guidelines that take place on June 1, in March servicers began collecting upfront documentation from borrowers before initiating the trial modifications. “There is a pretty tight correlation with the new requirements and what is happening with the number of trial modifications and cancellations,” said Zachary Urban, spokesman for the Adams County Housing Authority. The new requirements will “weed people” out who would have not made it into the permanent program, Urban said. (For an article about one of the nation’s largest servicers, Aurora Loan Service, please visit Aurora Loan Service No. 10 in the Nation.)

And that is not necessarily a bad thing, he said. “The last thing you want is to have someone spend all that time and effort at the front end, go through the trial, when there is no chance of them getting a permanent loan modification,” Urban said. “That’s not doing the borrower any favor. When you think about it, really what the person needs to do is cut bait.”

Urban said when the foreclosure crisis first reared its ugly head several years ago, getting a loan modification was “the Holy Grail,” and very few people were able to get them. “Now, it’s the starting point for just about everybody,” Urban said.  “And I think the pipeline (of distressed homeowners) has to pick up in 2011, just based on the sheer number of people who have ARMs and Option-ARMs that are going to re-set. ” He said a lot of homeowners are hoping that appreciating home prices next year will bail them out. “Of course, that’s every homeowners dream,” Urban said. But he said many experts see little on the horizon to indicate that home prices will rise appreciably next year in most places of the country.

Urban said he thinks that lenders have been using HAMP as “an incubator” to developer their own internal programs. “A lot of lenders are finding out that if they work with homeowners, and reduce their interest rates (on their loans), they can still make money, but with a lower yield. That is much preferable to a foreclosure, in which they lose money.”

HAMP not only choice for homeowners

Indeed, homeowners turned down by HAMP, may have other options from lenders, such as Bank of America and others, said Shannon Peer, Housing Counselor Director for the non-profit Brothers Redevelopment, which runs the Colorado Foreclosure Hotline, 1-877-601-HOPE.

“Just because you don’t qualify for a loan modification under HAMP, doesn’t mean there are not other options,” Peer said. “We are seeing an increase in what I call “proprietary” loan modification programs offered by individual banks and investors.”

The bank programs are all so different that they are just about impossible to compare, he said. “HAMP is probably the only program out there that has basically the same standards nationwide,” Peer said. “Banks might have different criteria for borrowers in Colorado than in California, for example. That’s why it’s important for borrowers to speak with housing  counselors. They will ask questions that most homeowners won’t think about. We also encourage homeowners to call early in the process, which will help them keep all of their options open.”

MSAActive TrialsPermanent
Modificatios
Total
Activity
% of Total
HAMP
Boulder3051204250.00
Colorado
Springs
8774911,3680.1%
Denver/Aurora5,4912,7658,2560.9%
Fort Collins/Loveland
4091705790.1%
Grand Junction2521123,6400.0
Greeley5532948470.1%

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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