Foreclosure Prevention Programs Not Working For Those With Underwater Mortgages

January 25th, 2010 by Reed Allmand

What good is it to modify a mortgage, only to owe three times what the house is actually worth? Well for many homeowners facing foreclosure, it’s just not worth the paper the modification is written on.  For them, foreclosure looks better than the false hope of mortgage modifications that don’t truly—well, modify the mortgage.  The problem is that many homeowners are sitting in houses that are only worth a fraction of the mortgage they are paying.  Mortgage companies approved these loans; but when the homeowners face foreclosure and seek a mortgage modification under the Making Home Affordable program, those same lenders don’t want to reduce the principal.    It’s unfortunate because many of these loans should not have ever been made in the first place.  Those homeowners are often facing foreclosure because they were given inappropriate mortgages.

Why wouldn’t the mortgage lender want to take responsibility for their mistakes?   Even when homeowners facing foreclosure receive mortgage modifications they cannot sell the home if they wanted to because the house is not worth the mortgage they are paying.  That means that if they need to move, for work, family etc., they would be stuck with a devalued house or be forced to sell the home at a loss and owe the mortgage company the balance. Or they could do a “voluntary foreclosure” and still be stuck with a bill. That doesn’t sound like a deal to me. If we are serious about battling foreclosure, mortgages that are significantly underwater must be brought into alignment with reality. It is not fair to homeowners nor to the American taxpayer (who funded a bailout of lenders) for mortgage lenders to not put their books (mortgages) in reality with today’s home values.