"Freddie Mac issued their 2209-26 bulletin which has details of the changes in the Home Affordable Modification program (HAMP) forbearance and net present value (NPV) requirements that will be effective on 12/1/09.
More specifically, â€œif it is necessary to use partial principal forbearance to achieve the target payment as outlined in Guide Section C65.6, the Servicer must apply the new limit on the amount of permissible forbearance, as described in today's Guide Bulletin, to determine if the mortgage is eligible for HAMP.â€ And â€œif the U.S. Department of the Treasury (Treasury) NPV result is negative $5,000.01 or lower, the mortgage is ineligible for HAMP and the Servicer should consider the borrower for another foreclosure alternative.â€ Freddie also told their clients that at this point all servicers must now use Workout Prospector to evaluate all borrowers for a modification under HAMP."
Also, there's another reason why Mods are not happening. See the "5) Ineffectual Loan Modification Program" heading of this Blog post I wrote back on 9/26/09:
"Coming to a neighborhood near you: REO Shadow Inventory"
Many people are confused or mis-informed about what a modification is. A modification in most cases is designed to roll in a past due balance and get the customer current on their loan. Period. If the bank can move the owner to a loan that is more affordable and makes financial sense TO THE BANK then a modification may be possible. The bottom line though, is the majority of homeowners in distress simply bought more home then they could afford.
Most modifications are going to result in a higher monthly payment for the owner because the loans being modified are typically interest only ARM's. When you roll in taxes and principal the payment goes up.
The answer your question about reductions in the principal balance is yes. Some investors are willing to walk away from the balance as a last resort. I see this on second loans where the investor is going to get nothing from a foreclosure anyway. I have not seen it done in situations where there is only one loan.
If you have a specific situation you'd like to bounce ideas off of give me a call. My cell is (951) 966-1417. I find this whole market fascinating. BTW, all the people I know who modified their loans last year are in default again this year. Now it's job losses adding to the pressure.
We The People are already digging in our pockets enough to help first time buyers, people that can not make payments, and ad nauseum. Please do not dig a hole for us that my great grand kids will never dig out of.
Yes, some banks are lowering the principal, and others use other methods (negative amortization, lowering rates, etc) to modify loan terms.