Loan Modification Programs - Officially in Vogue?

As reported by Bloomberg - "Schwarzenegger Seeks to Save Homeowners With Foreclosure Delay":

California Governor Arnold Schwarzenegger proposed a 90-day stay on home foreclosures in California, one of the hardest hit U.S. states by the national housing-market collapse.

Schwarzenegger attempts to add California to the VIP list for the loan modification party:

California, which leads the nation in foreclosures, is one of more than two dozen states that that have taken steps to help distressed homeowners and to stem escalating defaults. Congress has been urging financial-services companies to work with borrowers and avoid foreclosures, which rose to the highest on record in the third quarter.

'The single most powerful action our state can take to shore up its economy is to help Californians stay in their homes - and I am presenting a plan to do just that,' Schwarzenegger, a 61-year- old Republican, said in a statement. 'Curtailing foreclosures will stop the downward spiral of home prices, free up needed cash for homeowners, help save jobs and make an immediate positive impact on our economy.'

Schwarzenegger's loan modification wish list:

Schwarzenegger said he wants lenders to adopt a loan modification plan based on a 38 percent housing debt-to-income ratio so that the modified loan is sustainable for the homeowner.

He said lenders could achieve that 38 percent by reducing the loan's interest rate to as low as 3 percent for five years, increasing the mortgage's term to 40 years and deferring the payment of some principle to the end of the loan term, when it could be paid by refinancing or selling the home.

Are these loan modification programs helping or hurting the housing market? As we've discussed before, modifying ones loan will definitely provide immediate financially relief to struggling homeowners who get to participate.

How many loans will the banks be able to modify in 90 days? Will they be able to modify such a significant amount of these troubled loans that homes that would have entered foreclosure today, won't be doing so in 90 days?

Our opinion, doubtful. The 90 day moratorium will most likely do nothing more than stave off the inevitable for another 90 days for most homeowners ... Foreclosure.

Again, for a select few, this breather will prove to be saving grace. For the remaining overwhelming majority, your holiday season will prove to be just that. After the festivities are over, the fact will remain that the economy is still in bad shape, jobs will remain few and far between, your adjusted interest rate will still be sky high, and, unfortunately, you will still most likely be unable to pay your monthly mortgage obligation to own your home. In fact, your debt load will probably have increased in lockstep with those extra pounds that we always seem to embrace during this time of year.

On the bright side, perhaps in 90 days there will be another loan modification tweak or housing market proposal that will roll the debt forward. After all, we do this with the national debt and almost everything else financially speaking, why not with the housing market too?

It's a perfect time don't you think? Hmmm.

Additional loan modification articles:

1. Loan Modification Programs - IndyMac and B of A Lead the Way
2. JPMorgan Chase Loan Modification - Mortgage Program Expanded
3. JPMorgan Chase Loan Modification - Moratorium on Foreclosures