Jimmy Lathrop

Has President Obama's Mortgage Modification Plan Failed?

The biggest problem with the mortgage modifications is that they shave off payments for a period of time and stick it on the end of the loan capitalized as extra principal or paid in a balloon note. This has the effect of driving the mortgage rates higher pushing the home deeper underwater. When the modification period ends, the borrower is right where they were in the beginning unless they manage to drastically increase their income to manage the original payment. Worse yet, this increases the true cost of borrowing and probably removes any equity which may be in the home by the end of the loan. Until serious efforts are made to reduce principal by federal subsidy guaranteed personally by the borrower and non-dischargeable in bankruptcy will any true progress be made in granting relief to homeowners.