The New York Times reports that the Obama loan modification program is burying mortgage servicers in paperwork. The article states: “Hanging in the balance is more than the fate of individual homeowners. The administration portrays its mortgage program as a crucial piece of its broader effort to restore vigor to the economy. If the effort fails, foreclosures will continue to surge and home prices will probably keep falling, sowing fresh losses in the financial system and threatening to crimp credit anew for businesses and households.”
I hate to say “I told you so,” but we consumer bankruptcy attorneys did tell them so, when we went to Capitol Hill and told Congress this spring, that they needed to pass the “Save Our Family Homes” bill. The bill would’ve given bankruptcy judges the ability to modify home loans, by reducing interest rates, converting adjustable rate loans or ARM’s to fixed rates, lowering the principal of the loan to the value of the house (where it is less), and extending the term of the loans. There are just too many loans that need modifying, for the mortgage industry to handle it, at least in time to prevent massive losses.