Three Quarters of home owners under Loan Modification Plan have Negative Equity
A latest report by government auditors has confessed that more than 75 percent of home owners, who went in for loan modifications and reduced monthly mortgage payments, owe more on their mortgage loan, than their homes are worth.
Citing February statistics, the report says over 50 percent of an estimated 170,000 distressed borrower-home owners are seriously “underwater” by having negative equity of at least 25 percent – meaning for every $1.00 of home value, they owe on mortgage $1.25.
According to the report of the Congressional Oversight Panel, a watch-dog committee on federal bailout plans, released in April – the average troubled home owner that has received a five year modified mortgage had a negative equity of 35 percent, prior to the foreclosure mitigation program. It adds further that after the loan modifications, the average home owner’s burden has actually increased and they are underwater now by more than 43 percent.
Already conducted research surveys have shown that the more underwater home owners are, they are more likely to – fall behind on mortgage repayments; default or simply walk away from their sinking properties.
The government auditors’ report contradicts the COP report saying it understates the problem. The figures given by COP are for first-lien home mortgages only and debt owed on junior liens, such as second liens and home equity liens, is not part of that calculation. Last April, the Obama administration estimated that “up to 50 percent of at-risk mortgages currently have second liens.”
The auditors’ report indicates that – if junior liens were to be included, the percentage of negative equity holders would be higher significantly. In the words of government auditors “The continuing deep level of negative equity for many HAMP permanent modification recipients makes the modifications’ sustainability questionable; even with more affordable payments, deeply underwater borrowers may remain tempted to strategically default or may be compelled to, because core life events, such as death, divorce, disability, marriage, child birth, job loss, or job opportunities necessitate a move.”
In a round-about way, the government auditors say in their report in so many words that troubled home owners, even after availing loan modifications, tend to fail and more delinquencies can be expected in the future.
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[...] Citing February statistics, the report says over 50 percent of an estimated 170,000 distressed borrower-home owners are seriously “underwater” by having negative equity of at least 25 percent – meaning for every $1.00 of home value, they owe on mortgage $1.25. Read More.. [...]