DeaneBarker.net

Borrowers exit troubled Obama mortgage program: This is very much a tie-in to yesterday’s post about the family struggling to keep a home they probably couldn’t afford.  Their plucky lawyer got them into Obama’s loan modification program, but, I argued, they were still in an untenable financial position.

This article tends to back me up.

More than a third of the 1.24 million borrowers who have enrolled in the $75 billion mortgage modification program have dropped out. That exceeds the number of people who have managed to have their loan payments reduced to help them keep their homes.

[…] A major reason so many have fallen out of the program is the Obama administration initially pressured banks to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.

[…] Even after their loans are modified, many borrowers are simply stuck with too much debt — from car loans to home equity loans to credit cards.

"The majority of these modifications aren’t going to be successful, […] Even after the permanent modification, you’re still looking at a very high debt burden."

And there you have it.  This will likely sound very elitist and heartless, but a lot of people need to face reality rather than desperately struggling to hang on to a McMansion they have no business living in.  Just because your loan gets modified, doesn’t automatically mean you‘ve started living within your means.

Often, there’s less stress in just admitting you purchased a home way above your income level.  In these cases, if you can’t sell, perhaps foreclosure would be better in the long run.  Otherwise, you continue paying larger-than-normal mortgage payments on a house you ultimately cannot keep.