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The only certain thing in life is unpredictability, but a cheap mortgage protection insurance policy provides financial help in the event of accident, sickness or involuntary unemployment. An affordable mortgage protection plan will provide a homeowner with coverage for a maximum defined period of time (typically 12 months) or until that person is able to return to work. Don’t rely on the government for help as assistance is extremely limited and involves a lengthy wait before any help is provided.

Cheap Mortgage Protection Insurance

Higher involuntary unemployment has meant that the premium for mortgage payment protection plans have increased in recent years. Whilst this creates affordability issues for those surviving on a fixed income, there are ways to make mortgage payment protection coverage more affordable. It can be achieved by performing a more comprehensive market search, increasing the period of deferment before the policy pays out and/or reducing the level of protection afforded.

Trawl the Market for Mortgage Payment Protection

Many consumers make the mistake of accepting the first offer they receive for mortgage protection cover. However, it is easier to get cheap mortgage protection insurance by using an online comparison site, such as moneysupermarket.com, to search through hundreds of alternative providers. It is then relatively easy to trawl through the most competitive quotes and compare the terms. Others prefer to use a specialist brokerage service to determine genuine value for money.

Deferring the Payment from Mortgage Protection Cover

The longer the period of time that elapses before a policy pays out, the less likely the need is to arise. Whilst policies typically make payment 30 days following accident, sickness or unemployment, this period can be extended. This could work for a family that has set aside a sufficient sum of money to cover the first few mortgage repayments. It is necessary to decide whether the insured wishes to risk spending their personal savings or whether they’d prefer to pay a higher premium from the outset.

Decrease the Maximum Mortgage Protection Plan Payout

Most policies set the maximum monthly payout at about 75%. The higher the percentage payout the insured requires, the more expensive the mortgage protection cover premium will be. If savings or other sources of income are available, reducing the amount received will make the policy more affordable.

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What is the cheapest mortgage interest rate available and how do you find it? You have so many choices these days when it comes to mortgages that it is tough to know where to look in order to find the lowest mortgages interest rates. We’ll go over some ideas for you so that you can know where to start and how to find the best rate for your home loan, as well as tell you some mortgage options that might help you get the lowest mortgage rates by other means, such as adjustable rate mortgages or other mortgage options.

First of all, a mortgage is easier to obtain with a decent or borderline credit score than other types of credit simply because you can’t run off with a house like you can with a car or other type of merchandise that you can buy with credit.  However, with bad credit finding the cheapest mortgage is difficult because it is usually offered to those with very good credit scores. If you have good credit then finding the cheapest mortgage interest rates is fairly easy because most lenders will have pretty much the same interest rate all across the board.

However, if you have bad credit then you may have to shop the subprime market. A subprime mortgage is one that is offered at a higher interest rate than conventional mortgages, but also is offered to people with bad credit. However, one thing to keep in mind is that these rates will fluctuate a lot between different lenders. The market for those with bad credit seeking subprime mortgages is kind of a get-what-you-can market and for that reason you should shop around quite a bit before deciding on a subprime mortgage lender.

There are a few other factors that can determine whether or not you qualify for a regular mortgage interest rate or whether you will be forced to go with a subprime mortgage. Your down payment is one of those. If you can make a large down payment, say ten to twenty percent, then you may be able to get the regular rates offered to mortgage seekers even if you have bad credit. Other factors may include your income and how long you have been on the job as well as living at your current address for a while and the amount of debt you have as opposed to how much money you make per month.

There are many options available for mortgages and finding the cheapest mortgage fixed rate is what most people think of when they are looking for a mortgage loan. However, there are adjustable rate mortgages as well, which changes with the market every one, five or ten years. Other options may include creative financing such as balloon mortgages in which the payment gets larger over time or FHA loans that are guaranteed or insured by the government as well as options that most people don’t think of like interest only mortgages. Ask your lender for details on all of these to choose the best option.

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Mortgage refinancing offers a chance for individuals to get lower interest rates. This looks as if, like an outstanding choice, and can be benefited with, pursuing some easy steps. Deciding on a cheapest mortgage refinance option can be beneficial in many ways. A consumer’s economic condition and earnings may have altered, or the person may now think about securing a lowest interest rate can be excellent for cost-effective purpose. Yet whatever the reasons, plenty of options are available that can meet the customers unique circumstances. At present, several companies provide refinancing mortgage loan, and searching online for information associated with mortgage refinance loan is an excellent idea.

Interest rates vary with different types of mortgages, and based upon the mortgage provided and the individual’s needs, it is essential to seek the lowest interest rate for that specific loan kind. There are two types of loans, fixed rate and variable rate. A fixed rate mortgage usually has tenure of 15, 20 or 30 years at a fixed interest rate and does not change over period. In fixed rate finance, payments remain unchanged over the term of the loan. Variable rate mortgages interest rates are lower than a fixed rate mortgage; however vary in line with the market condition and inflation. Variable rate mortgages lets borrower to qualify for different Low-rate mortgage refinance loan with interest rates that can increase within a few years, often increasing to a higher monthly payment at the end of the tenure. On the other hand, these high-interest balloon payments can be lethal in view of the fact that it can cause foreclosures as soon as buyers are unable to come up with the money for increasing rates.

Besides, buyers should remember that the mortgage rate would usually not reveal the fine prints and hidden cost that a lender may perhaps add to the mortgage. One of these hidden costs is various fees that the lenders demand for their low rate mortgage refinancing. For that reason, you have to consider these additional charges and fees, once you begin looking for best mortgage deal possible. Evaluate and compare all the offers from as many lenders as possible in terms of lowest interest rates, lowest fees/charges, lowest closing cost, lowest down payment, terms and conditions and the overall package of mortgage refinance loan. A mortgage refinance loan can be a short-term loan or a long-term loan provided by banks/lenders to a homebuyer or a property investor and is generally paid off in monthly payments.

Advantages of low rate mortgage refinance are, it lowers your monthly payments, it increases home equity more rapidly by availing refinancing mortgage, it can restructure a loan, it can increase your credit score, you can make use of the equity in your home, you can repay your mortgage faster, low-rate mortgage refinance loan can help you to save money, it’s feasible to change from a variable rate mortgage to a fixed rate mortgage with a lower interest rate.

Mostly, Online refinance mortgage lenders offer better deal in terms of overall package which includes lower interest rates, fees and terms and conditions. With online refinance mortgage lenders offering services to possible buyers, consumers now have a wider choice. At present, consumers can easily compare mortgage rate proposals from various lenders; you can get the best terms and conditions for your specific requirements. In addition, a number of online services are available like online mortgage refinance calculators, mortgage brokers and advisors that offer help pertaining to your situation.

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Many homeowners that have gotten themselves in trouble financially are looking for mortgage help. For most people, it is the single, largest, obligation that they will ever have. With this kind of responsibility, many people have faced major problems with it through the years. When times get tough, sometimes it takes a little bit of help from an outside source to get through. Getting mortgage help is not the ideal solution for anyone. However, when you are left with few options, getting mortgage help might be your best choice. Here are a few ways that you can get assistance with your mortgage if you need it.

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1. Contact the Lender

If you get into trouble with your mortgage, the first phone call that you make should be to your mortgage lender. Let them know exactly what is going on and about the kind of trouble that you are having. Ask them if they have any possible solutions for you and what you should do.

If you have been late with a few payments, they may have sent you a notice of default. Although this type of document appears to be the last straw, it does not mean that they will not work with you. Many lenders are willing to help you out if you get into trouble. They may eliminate late fees and help you get caught up again. They might even renegotiate your mortgage for you and give you some more favorable terms to work with.

2. Nonprofit Counseling Services

There are several nonprofit debt counseling services out there that can potentially help you with your mortgage. They work with those that are behind on their payments and help them get things back under control. They will work on your behalf if you allow them to. They can actually call your lender for you and negotiate on your behalf. They could potentially work out a new mortgage for you and help you avoid foreclosure.

3. Private Mortgage Insurance

Many homeowners look at paying PMI on their mortgage as a nuisance. It adds money to their monthly mortgage payment and makes it tougher to afford their payment every month. While this may be the case, PMI can actually come in handy once in a while. The PMI Company will pay the mortgage to the lender, in the case of default. Therefore, it is in their best interests to help you out.

Some PMI companies offer assistance in the form of job-loss protection. If you lose your job, they will pay up to $2000 per month towards your mortgage payment for a few months until you get back on your feet. They may also be willing to give you a short-term loan in order to help you get caught up on your late payments. They will help you in whatever way they can. The first step is for you to call for help.

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Tired of paying high interest rates for your mortgage? Want to shorten your loan term by paying a little extra? Want to refinance with a fixed interest rates? Refinance is the best solution for you provided you get a good deal favorable for your situation. To avail a good refinance deal it is always advised to stay tuned to the financial websites showcasing ‘today’s refinance rates? every day. In fact if you subscribe to them, they will send you emails displaying the best of today’s refinance rates on their charts. Refinancing is a tricky situation where one needs to thoroughly scrutinize all pros and cons of the deal he is opting for.

First of all one has to search for a broker who is offering you the best of today’s refinance rates! This can be done by simply logging on and entering some simple details about your mortgage figures. As soon as you are done you will be guided to multiple brokers and lenders who are ready to offer you a good refinance rate. If you are satisfied with a particular broker’s offer of today’s refinance rates you could contact them directly or maybe send him your details so as to allow him to get back to you as soon as possible. Today the whole system of refinancing has been made easy through the Internet wherein many websites help you find brokers available in your vicinity saving you a lot of time and effort wasted otherwise.

Refinance as the name suggest means financing all over again! The deal should be chosen with utmost calculation so as to avoid any financial chaos later. You need to sit with your broker to study all the terms and conditions attached to your deal. One advice everyone should follow is not to get attracted to the best of today’s refinance rates displayed usually. This is because an individual needs to calculate his total monthly payment to be made, i.e. the interest rate payable plus all the other hidden costs including service tax, closing taxes etc. Sometimes, choosing a low interest rate without careful calculations lands you up paying increased monthly payments than before. Today refinance is available for customers with a good credit as well as a bad credit report. However a borrower with a bad credit could face higher interest rates than people having a good score!

Following updates regarding display of today’s refinance rates is absolutely important for borrowers opting for a floating interest rate system. When the rates are really low, one could opt for beginning the refinance process. However if you are not a keen speculator you could always select a today’s refinance rates offered for fixed type of refinance deals. Are you confused regarding which type of interest rate system you should follow? Get online and make a search for a free online calculator, which will provide you estimated monthly figures for both options so that you can get the plan you need!

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Late last month Mr. Bob Greene stated:  “I have often wondered why there is such an uproar … against using a portion of reverse mortgage proceeds to fund LTCi or an ILIT. These … can be valuable tools to assist in protecting ones estate and legacy.…. I was always under the impression that the goal of a reverse mortgage is to assist seniors who want to age in place … and to assist them to protect themselves, their estate, and their legacy.”  Mr. Greene asked for a response to his comment.  This article is that response.

While I generally agree with the assessment that LTCi can be a valuable tool in protecting most estates and legacies, Irrevocable Life Insurance Trusts (ILITs) can be nothing more than a loss of control and a potentially huge loss of money for the vast majority of taxpayers and their estates.  For readers who are not familiar with estate planning, ILITs are trusts recognized both under state law and tax law as legal entities to hold life insurance for heirs outside of the estate of the trustor.

LTCi Specifically

Throughout 2009, many opined on this website about paying for LTCi with reverse mortgage proceeds.  Because LTCi varies substantially by benefits, cost structure, and the financial stability of insurers, buyers should carefully compare policies and should not be pressured by other considerations including originating a reverse mortgage to pay for LTCi.  Thus not only should cross selling be condemned but so should all other reverse mortgage origination transactions during the period of LTCi consideration.  Once selected there is no reason why reverse mortgage proceeds should not be used to acquire LTCi.

LTCi can be beneficial for individuals with smaller estates as well as those with large ones; however, LTCi is not a good option for everyone but should be investigated by everyone.  What benefits might be deemed necessary as younger adults may not necessarily be the same as one ages; thus one should review the policies periodically.  Too little LTCi could be nothing more than a waste of money; too much is wasteful as to the excess.  Competent, knowledgeable, and experienced fee based LTCi advisors who do not sell LTCi will provide guidance which many times results in cost savings many times the fees incurred.  They can also provide better matching of benefits and help compare the financial stability of insurers along with providing information on the reputations of companies for honoring policies and paying benefits.

With Rare Exception, ILITs Are For the Wealthy

ILITs are very different.  The primary use of ILITs is to provide more life insurance proceeds to heirs than can be achieved through inheriting them directly through the estate. ILITs are rarely used in smaller estates unless unusual circumstances exist such as when a spouse is a nonresident alien.  At times they are used in divorce property settlements and in child support cases to hedge against lost support in the event of death of the provider.  Some charitable remainder trusts may be set up very similar to ILITs but that goes beyond the scope of this article.

ILITs are designed to hold life insurance so that proceeds are not subject to the estate tax assessed on the net taxable assets of the estate as a result of the death of the ILIT trustor.  Normally cash is contributed to an irrevocable trust and life insurance is then purchased by the trust on the life of the trustor.  Costs incurred for creating, funding, operating, and terminating an ILIT can include income taxes, gift taxes, life insurance premiums, and fees for administration, accounting, legal services, tax consulting and tax return preparation.  The beneficiaries of an ILIT normally cannot be changed.

In the last decade we have seen some of the most radical and sweeping changes in estate tax law than at any time in the prior 60 years.  In some cases, ILITs that seemed quite necessary when created proved to be little more than wasted costs and unnecessary restrictions on the trustor.

The Bush Administration sponsored legislation in 2001 that reduced estate tax rates and increased the unified estate tax credit between 2002 and 2009.  The result is that for estates whose decedents passed away in 2002 the first $1,000,000 in net assets passed to heirs with no estate tax.  Eventually for estates whose decedents passed away in 2009, the first $3,500,000 of net taxable assets were free of any estate tax.  With a little estate tax planning up to $7 million in net assets of a married couple can pass to heirs with no estate tax but only if the estate tax remains the way it was at the end of 2009.

As the estate tax law currently stands starting on January 1, 2010, the estate tax terminates for one year.  Then on January 1, 2011, the estate tax returns to the way it was in 2002.  President Obama campaigned to repeal the termination of the estate for 2010; however, he never explained his vision for the estate tax after 2009.  The House has passed a bill that essentially would leave the estate tax structure the same way it was as the end of 2009 for all years thereafter including 2010.  Until the Senate begins considering the House bill, no one is sure how the estate tax will change if at all.

With the reduction in many asset values over the last half of the last decade, the estate tax impacts even fewer estates.  This means ILITs have become less and less beneficial, sometimes incurring needless but substantial gift tax liabilities.

In late 2008 an attempt was made to present to originators and lenders the use of reverse mortgages in funding ILITs.  The presenter was right on point when she stated that with the loss of proprietary reverse mortgages, it was doubtful if ILIT funding using a HECM would be practical.  HECMs simply do not provide the kind of funding needed, although they might provide a part.

In evaluating whether an ILIT is an effective vehicle or a loss of time, money, and control, it is important to project any gift tax liability and to determine the deductibility of the accrued interest.  In many cases, using assets earning taxable income may be wiser than using a reverse mortgage to fund ILITs.  To evaluate the net benefits of an ILIT and also the different ways of funding them, it is important to use time value of money concepts.

It is estimated that less than 0.34% (less than one-half of one percent, less than one in 300) of the estates of decedents who passed away in 2009 will be required to file estate tax returns.  Many of those will pay only minimal estate taxes.  Thus ILITs are very beneficial for large estates whose decedents passed away in 2009 and a very minute percentage of smaller estates.  There is much more to say about the desirability of ILITs over direct gifting to heirs and having them purchase the life insurance but the purpose of this article is to focus on funding ILITs through the use of reverse mortgages.

Today ILITs are not as popular as an estate planning vehicle as they were in the first half of the last decade.  The situation could change depending on the action Congress takes this calendar year.  Until proprietary reverse mortgages return and provide substantial proceeds, using reverse mortgages as a means of funding ILITs will be little more than an interesting curiosity of the last decade.

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Mortgage rates continued their fall last week (a short one because of the Thanksgiving holiday). The rate on the 30-year fixed fell to 4.79% from 4.82% two weeks ago. That was the lowest rate since the week ending May 15, according to the Mortgage Bankers Association’s weekly survey released Wednesday.

Application volume was up 2.1% from two weeks ago. But much of the activity was in refinancing–72.1% of applications.

Average rates continue to fall into record-low territory, meanwhile, on 15-year fixed-rate mortgages. Rates were down to 4.27% last week, the lowest ever recorded in the MBA survey, which dates back to 1972. The previous record-low was hit in October 2009.

Over at the Mortgage Insider blog Mathew Padilla wonders why there’s been little buzz over these low rates. “Perhaps it’s true that everyone who could benefit from a refinance has refinanced,” he speculates.

Readers, have any of you taken advantage of these low rates by refinancing? How long do you expect below-5% rates to last?

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Reverse Mortgage Tips – Many older homeowners who saw their retirement accounts decrease, are struggling in this economy. “Reverse Mortgages” can provde a lifeline. According to experts, these loans which are only available to age +62 seniors in order to get by with extra spending money.

The original limit a homeowner could get in a reverse mortgage was $417,000, but President Obama increased the limit for one year up to $625,000 and just approved an extension into next year. And the aging population is becoming more and more aware of reverse mortgages as a way to stay in their homes and not have to make payments and have extra money for anything they want.

The difference between a reverse mortgage and traditional home loan is instead of making monthly payments you can choose to receive them. That’s the “reverse” part of a reverse mortgage.

Besides being over 62, other requirements are that the home must be owned free and clear or have a remaining mortgage balance that can be paid off by the reverse mortgage. The home must also meet Department of Housing and Urban Development minimum property standards.

Reverse Mortgages have specialized processes that needs a lot of attention and more work than a traditional mortgage.

Eligibility requirements are simple. There are no income, employment or credit score qualify restrictions. The amount that can be borrowed is determined by a HUD formula based on age, appraised value of the home, current interest rate and established lending limit.

Reverse Mortgage Counseling – Seniors must go through counseling as part of the application for a reverse mortgage and receive a certification of completion. The mortgage companies have to make sure that all the ramifications and options are clearly explained because HUD believes the extra protection for some one over 62 years old is needed.

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Is the mortgage modification program making things worse?  An article in the New York Times gives voice to fears that by encouraging homeowners to stay in homes that they cannot really afford, Obama’s Making Home Affordable program is actually increasing the agony of homeowners, who pour money down the rat hole of their mortgage rather than recognizing the loss and starting over.  In the meantime, the modification programs disguise the true condition of bank balance sheets (because modified mortgages are not yet non-performing mortgages), and slow down the process of recovery.

Is the mortgage modification program making things worse?  An article in the New York Times gives voice to fears that by encouraging homeowners to stay in homes that they cannot really afford, Obama’s Making Home Affordable program is actually increasing the agony of homeowners, who pour money down the rat hole of their mortgage rather than recognizing the loss and starting over.  In the meantime, the modification programs disguise the true condition of bank balance sheets (because modified mortgages are not yet non-performing mortgages), and slow down the process of recovery.

How much truth is there to this story?  Some, at least.  I found myself talking to my father about this after I exchanged blog posts over the tragic case of Tom Vellucci, a Floral Park resident who lost his job and wound up with a non-paying tenant, then drained his savings trying to keep up with a modification that got him current, but didn’t lower his payment.  We’re both longtime New Yorkers, so there’s a certain local interest in what happened.  We were mystified by why anyone would think that Mr. Vellucci would qualify for a modification–and more importantly, why Mr. Vellucci would have thought so.

Reading between the lines in his story, Mr. Vellucci had virtually no savings (making his house payments tapped him out in four months).  His income was moderate at the best of times, and his house payment was so large that everything had to go right for him.  If he was out of work or lost a tenant for any length of time, he was going to end up in defaulting.  As of the story’s publication, he was still on the dialysis that cost him his job, meaning he is not going to regain his income any time soon.  There was no way that any imaginable mortgage modification was going to clean up this mess.  Yet he gave the last of his savings to a skeezy servicer in some sort of tragic Hail Mary pass.

Why would he do something so patently insane?  Apparently he was hoping that he could get a second modification under MHA.  But his interest rate wasn’t his problem.  He had a mortgage principal that probably ran into the mid six-figures, and no job, and probably required a modification that slashed his payment in half.  The Obama program clearly raised ridiculous, unrealistic hopes in at least a few people.

That said, the people pushing the notion that MHA is making everything worse have their own vested interests: people who want to pin political blame on Barack Obama; hedge fund managers and other financial types who presumably have taken bets that will pay off quicker and easier if foreclosures pick up; people pushing for more aggressive modifications that write down principal as well as interest rates.  With few permanent modifications yet approved, and no data, it’s not clear to me that this is a significant problem, rather than an occasional tragedy.

But I think that the so far lackluster results from MHA do point to something important, which is that we don’t have the kind of mortgage crisis we thought we had when we passed the modification.  This represents not only a shift in our thinking about how to fix the housing markets, but a major shift in our national narrative about the housing bubble.  Six to nine months ago, the major story we told in connection with the financial crisis was the homeowner suckered–by either fraud or greed–into a teaser loan with an artificially low interest rate that was going to turn disastrous when it reset.

We’ve seen some of that, to be sure, particularly with the “Option ARM” or “negative amortization” loans on which homeowners weren’t even making the full interest payment.  But that hasn’t turned out to be our biggest problem, largely because we are in a very low interest rate environment right now, so many people saw their rates reset downward rather than up.  Instead, we are plagued by negative home equity, and unemployment.  We have a modification program designed to avert a threat that never materialized.

Now we have a choice between two more stories.  One presents the negative equity as the major problem.  Negative home equity is a bigger predictor of default than job loss; so, the reasoning goes, we must be seeing something akin to the infamous “jingle mail”, in which people hand over their keys rather than keep making payments on a house that isn’t appreciating.

Obviously, this happens.  But I doubt it’s particularly common.  Most bankruptcy experts believe that while there are a handful of grossly irresponsible jerks who deliberately borrow as much as they can get away with before defaulting, or otherwise abuse the process, the majority of people who default try really really hard to find some way to make their payments.  (Interestingly/oddly, this does not seem to be as true of student loans and utility bills.)

My story is a little more complicated.  People who lose their jobs, but have positive equity, sell the house when money gets tight. (Five years ago, they probably would have refinanced).

People who lose their jobs, but have negative equity, lose the house.  So do people who get divorced and have negative equity, people who are whacked with unexpected medical or legal bills and have negative equity, people who get hit with back taxes and have negative equity, people who develop a gambling problem or a drug habit and have negative equity.  The negative equity is better correlated–but that doesn’t mean that people are deciding to walk away from houses just because they’re underwater.

My story is kinder to the debtors, but it also makes modifications more problematic.  If the negative equity is the main problem, you can solve the mortgage crisis by switching to modifications with “cramdowns”–i.e., get a judge or a banker to write off the portion of the principal that exceeds what the house is worth.  This has unpleasant side effects–it would probably pretty much instantly return us to the days of 20+% down payments on every house, and likely cause house prices to fall farther.  But it at least has some hope of solving the immediate foreclosure problem.

But if negative equity is merely exacerbating an untenable situation, it’s not clear how much good even a cramdown will do.  Proponents of cramdowns have begun a recent love affair with the pre-1977 bankruptcy code.  They are blissfully oblivious to the fact that the pre-1977 code was in many ways much less debtor-friendly, which is why it was reformed.  But that is neither here nor there, really.  Even the pre-1977 code did not view the cramdown as a sort of magical gift to the homeowner.

At least as I understand it, cramdowns were then, as they are now, part of a Chapter 13 bankruptcy–in other words, part of a court-ordered repayment plan, not a Chapter 7, in which the debtor sheds their past debts.  If a Chapter 7 debtor wants to keep an asset that is securing a loan, he has to reaffirm the debt.

In a Chapter 13 cramdown, the loan is “stripped” or bifurcated into two portions: the secured part, in the amount of the asset’s current value, and an unsecured part, which is paid after other obligations have been satisfied.  (In practice, this usually means “never”; they’re generally discharged if the plan is completed successfully).  You have to pay the bank on time, every month, for a number of years; if you don’t, your Chapter 13 fails, and the loan reverts to its old terms.  Which, among other things, means that you now owe all the money you didn’t pay the bank while the modification was in effect, plus the interest that compounded on the unpaid portion.  Since most Chapter 13 plans fail, this should give advocates of mortgage cramdowns pause.

There is no precedent or procedure that I am aware of for letting homeowners get a modification in order to sell the house; that’s what a short sale is for.  But if people really are defaulting out of desperation, then selling the house is probably what they need to do.  Unless they’re very poor, people don’t lose the house because they got a 5-10% pay cut; lower taxes mitigate some of the effect, and people will do a lot before they’ll allow themselves to be foreclosed on.  No, by the time most people are looking at foreclosure, they’re in one of three situations:

They were irresponsible borrowers who have amassed an essentially unpayable amount of debt.

They have had a dramatic loss of income (business failure, bad investments, furlough/job loss/new job at lower pay).

They have had a dramatic increase in expenses (lawsuit, medical bills, back taxes, gambling problem, etc.).

The first group may be helpable, but if someone has $50,000 in credit card debt, no responsible banker would agree to modify their loan outside of a bankruptcy court; you’d essentially be making a free gift to other creditors who ought to share the pain.

The second group is not helpable, because outside of a few frothy markets like California, writing the house down to market value will not provide enough of a decrease to cushion the kinds of income decline that push people into foreclosure.  A 10% write-down on a $400,000 mortgage at 6.25% nets you a little over $250 a month in savings.  If you make enough money to have a $400,000 mortgage, you are not defaulting because you suddenly developed a $250 shortfall in your monthly budget.

This arithmetic is also a problem for the third group, plus one hopes that no sensible banker would modify the loan of anyone whose other major creditor was Harrah’s.

So to answer the question I posed at the beginning: there’s not much evidence that the current scheme of mortgage modification is making things worse.  But there’s also not much evidence that any differently designed system would have made things any better.  We may have to look for other ways to ease the pain of those whose houses are more than they can afford.

And we might start by trying to make it easier to get out of houses, as well as stay in them.  Instead of encouraging people to throw their savings into hopeless modifications, maybe the government should be trying to streamline the process of arranging for a short sale so that people can walk away with a little savings in the bank (and on their credit report) to help them get a fresh start.

Update:  A reader at Atlantic Business argues that an MHA directive does this.  It’s a good start, but I’m thinking more like a requirement that banks accept short sales where the payment is more than 40% of current income, and the offer is within 5-10% of the appraised value of the house or the most recent tax assessment, without forcing the homeowner to first become delinquent.

I mean, not anything that hamfisted–but some set of relatively clear guidelines for which it is fairly simple to document the criteria.

Banks and servicers are in no position to do anything complicated quickly–I’m sure many of them are dragging their feet on modifications and short sales, but it’s also really quite clear that they’re genuinely overwhelmed by the volume that has flooded them.  You can order them to process short sale offers in 10 days, but that doesn’t mean they can develop the institutional capacity to do so within anything like the necessary time frame.

I’m sure at least one reader will protest that this is a giveaway to deadbeats, and a violation of property rights, but it’s more like an orderly process for recognizing the inevitable.  The terms I specified are quite generous to the banks, because someone in that position is quite likely to default eventually.  Setting transparent general terms for a short sale saves the banks administrative costs, not to mention the much higher costs they’ll pay if the home goes to foreclosure.

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