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Housing Recovery Supported By Loan Modifications

Written by Paul Esajian

According to a report issued by Hope Now, an alliance dedicated to helping distressed properties, approximately 63,000 homeowners were the beneficiaries of permanent, affordable loan modifications in July. Modifications include those completed under proprietary programs and the government’s Home Affordable Modification Program (HAMP). Analysts familiar with the market attribute the now lower amount of delinquencies to increases in loan modifications.

50,000 of the July alterations were the result of proprietary loan modifications; meaning individual lender programs were responsible for the majority of them. Whereas 13,183 of them were taken care of by the government’s HAMP initiative. Of particular importance, however, is the effect these changes have had on the housing sector as a whole. It appears as if loan modifications have supported the housing recovery.

On a national level, loan modifications have reached nearly 519,000 for the year. Conversely, the estimated number of foreclosure sales has settled at 378,000 in the same time frame. This number represents a significant decline.

The number of loans that were modified in July brings the total number of permanent loan modifications up to 6.6 million since 2007. An additional 5.36 million homes received proprietary loan modifications in that same period.

The Hope Now report suggests that the housing recovery is due, in large part, to the number of loans that have been granted the approval to receive modification. Accordingly, foreclosure sales have seen a drastic decline over the past year. The sales of delinquent properties dropped from 485,000 in the first half of 2012 to 378,000 in the first half of 2013. It is reasonable to assume that home loan modification programs have played a pivotal role in the current recovery.

While the past year has seen a significant decrease in the amount of foreclosure sales, foreclosure transactions were up 14% in July. On a national level, 52,000 foreclosures were documented in June, whereas 59,000 were completed in July. Additionally, foreclosure starts received a slight increase as well. An increase of five percent saw foreclosure starts rise from 98,000 in June to 102,000 in July. These increases are believed to be the result of banks and lenders catching up after years of falling behind. Ultimately, lenders are now capable of collecting on delinquent loans they were not able to in the past.

The amount of foreclosures banks were faced with caused a significant delay in the collection process. There were simply too many houses underwater for lenders to take action. Now that encouraging trends in the housing sector appear to be sustainable, banks can now focus on collecting their properties.

Despite the recent increase, analysts remain optimistic about the direction of the market. According to Hope Now’s Executive Director, Eric Selk, “Our July data shows a consistent trend, month-over-month, pointing toward market stabilization. Loan modifications and short sales continue to outpace foreclosure sales,” said Selk. “Through the first seven months of the year, there have been approximately 80,000 less foreclosure sales compared to the same time period in 2012.”