‘Mass Mods’: Will Help for Homeowners Be Enough?

Posted on November 27, 2008. Filed under: Foreclosure Defense, Loan Modification | Tags: , , , |

The mass efforts to modify mortgages and stave off foreclosures sound great. JPMorgan Chase (JPM) is reaching out to 400,000 at-risk customers. Fannie Mae and Freddie Mac are freezing foreclosures until 2009. Some 500,000 distressed borrowers at Citigroup (C) could get relief over the next six months. But even if banks live up to their promises, the initiatives may not be the panacea the housing market needs.

Following the lead of state and federal agencies, many of the industry’s biggest lenders have announced plans in recent weeks to work out troubled mortgages by cutting rates, deferring principal, or extending the lengths of loans—all designed to lower borrowers’ monthly payments and keep people in their homes. But absent further steps, the private and public programs together will help only about 2 million homeowners, fewer than a quarter of the borrowers expected to face foreclosure through 2010. Those tallies could rise if unemployment, now around 6.5%, climbs above 8%.

Not all borrowers should be saved. After all, some foreclosures are important to rid the market of people who should never have gotten a loan in the first place. Also, real estate speculators, individuals who bought a second or third home, and dubious borrowers aren’t likely to get relief.

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