In the ongoing battle over principal reductions in loan modifications, another blow has been struck on the hugely unpopular side of not reducing the amount of money owed when a loan is modified. According to data released this week by the Department of Housing and Urban Development (HUD) and the U.S. Treasury, the success of loan modifications relies mainly on the reduction of monthly payment amount rather than on reducing principal so as to render a property no longer underwater. The study included information on the 1.1 million borrowers who have received loan modifications through the Home Affordable Modification Program (HAMP) since its inception, and indicated that borrows who get their loan modifications through HAMP are “less likely to fall behind on their payments compared to borrowers who receive private-sector modifications”[1].

“Payment reduction is strongly correlated with permanent modification sustainability,” observed the analysts who compiled the report. They also noted that the majority of borrowers who do re-default on loan modifications tend to ultimately avoid foreclosure and instead work out a short sale or deed-in-lieu transaction. The study was released immediately in the wake of a report from the Special Inspector General for the Troubled Asset Relief (SIGTARP) program that indicated that HAMP has not been nearly as effective as had been hoped. SIGTARP accused HAMP modifications of falling through at an “alarming rate” and warned that the Treasury “does not fully understand why so many of these loans are going sour”[2].

Do you think that the HUD numbers or the SIGTARP numbers tell the real truth?

Your comments and questions are welcomed below.




by Carole VanSickle