Home Loan Modification: 65-75% of Loans Modified via HAMP (the govt’s Home Affordable Modification Program) Likely to Go Bad
Many homeowners facing foreclosure are desperate to modify their existing mortgages. But, if recent statistics are anything to go by, even this won’t save them from losing their homes.
Why Up to 75% of Those Who Get Home Loan Modifications via HAMP are Likely to Default
According to the recent CNNMoney.com article, up to 75% of modified home loans will default, the biggest reason is . . surprise, surprise . . . debt.
Americans are not afraid to go into debt. And it’s one of the reasons, one could argue, that we got into this home foreclosure crisis to begin with.
Most of us spend more than we make. Proof? According to the aforementioned article:
On average, HAMP-modified borrowers . . . have 64% of their monthly pretax income spent before they even buy a quart of milk. [Hence] If even a small emergency arises — an unexpected car repair, a medical bill or a loss of overtime income — they’re in trouble.
Are Americans Contributing to Their Own Financial Ruin?
Countries like Canada and Japan have high rates of savings among their citizens. For example, the savings rate for Japanese younger than 30 is some 20%. That’s an astounding amount, when you consider that Americans only save between 1% and 4%, according to statistics as of late 2009.
A History of Savings by Americans
It used not to be this way. Americans used to save much more. Proof?
In the first month that the BEA (Bureau of Economic Analysis) provided us with data (January 1959), the personal savings rate in the United States was 8.3%. So, this means that, on average, Americans were able to save 8.3% of their disposable incomes. . . . it would end up falling below 1.0% multiple times between 2000 and 2010. [Source: DaveManual.com]
So we are, in essence, contributing to our own demise.
We drive cars that we can’t afford, buy houses that we can’t afford and overall, live lives we can’t afford.
How We Can Clean Up the Home Foreclosure Mess – And a Host of Other Financial Ills
Many of us need to start living on a lot less than what we make. Most financial experts advise living on 75 to 80% of what you make.
And most housing experts say that your mortgage (and all related expenses like homeowners insurance, HOA fees, property taxes, etc.) shouldn’t be more than 25-33% of your take home pay (not your gross pay).
Most conservative home mortgage experts and financial advisors like for you to stick to the 25% limit.
So if your net pay – after taxes, savings, retirement investments, etc, is $2,000 per month — that means that theoretically, your mortgage and related expenses shouldn’t be more than $500 per month.
How many Americans wouldn’t face foreclosure trouble if they had lived by this formula – and had a habit of saving 20 to 20% of their incomes.
Not only would they have had manageable mortgages, they would have had nest eggs to get them through hard times like job losses and other unexpected financially troubling times.
So while we can point the finger at bankers, Wall Street and our government all we want, a lot of us need to look at “the man in the mirror,” to quote the Michael Jackson song, to see where fault lies.
Read the full story on how HAMP is failing when it comes to home loan modifications.
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Copyright © 2010 Yuwanda Black for Foreclosure Business News. Article may not be reprinted or reproduced in any manner without the express, written consent of the author.