When the federal government announced its mortgage relief program last year, it proclaimed a lofty goal: helping protect three million American households from foreclosure. But the reality of the Making Home Affordable Program has been much different: less than one-sixth of the stated goal will get permanent help.
The New York Times reports that the drop-out rate from the program is high. In July of this year, 96,000 trial mortgage modifications were canceled by lenders, bringing the total number of cancellations to well over 600,000.
The cancellations in the Making Home Affordable Program occur because of several factors, experts say. Banks rushed to sign up borrowers who turned out later to be unqualified for a variety of reasons: their debt load wasn't heavy enough, or the house wasn't their permanent residence, they had incomplete documentation, or they just couldn't make payments on the modified mortgage.
A Toothless Government Program
Another major problem critics point to is that the program largely toothless because it's completely voluntary. Lenders can't be compelled to modify mortgages, even if borrowers fit all the criteria.
So borrowers might well find themselves studiously working to accurately complete the 11-page application, and making calls to track down all the paperwork on their home (lenders commonly sell mortgages to investors or other banks), only to find their bank isn't interested in modifying their loan regardless of qualifications.
For people struggling with an underwater mortgage and credit card bills, the program's low rate of success doesn't offer much hope of turning their financial lives around.
Making More Sense
For many homeowners facing foreclosure, a Chapter 13 bankruptcy makes more sense than the federal government's faltering modification program. Chapter 13 bankruptcy stops foreclosure procedures, collections activities and garnishments while giving overloaded homeowners time to reorganize their finances.
For those struggling with unemployment and an underwater mortgage, it might make more sense to file a Chapter 7 bankruptcy and let their house go while discharging credit card debt, medical debt and other debts.
Chapter 7 bankruptcy gives them a fresh start in a battered economy, enabling them to rebuild credit, get collectors to stop their harassment and get rid of all eligible debt.
Understanding Your Relief Options
To learn more about Chapter 7 liquidation bankruptcy and Chapter 13 reorganization bankruptcy, contact a Nashville, Tennessee bankruptcy attorney for an evaluation of your situation. A bankruptcy lawyer walks you through the process, helping you understand the benefits and costs of each legal option.
