About 97,000 homeowners in the government’s mortgage modification program have been stuck in a trial period for over six months. Most of them, about 60,000, have their mortgages with a single mortgage servicer, JPMorgan Chase.
Trial periods are designed to last only three months, after which mortgage servicers are supposed to either give homeowners a permanent modification or drop them from the program. According to a ProPublica analysis, about 475,000 homeowners [1] have been in a trial modification for longer than three months.
While the Treasury Department has so far allowed servicers to stretch the trials without repercussions, the government issued little-noticed guidelines in late December, warning that lenience will end at the end of this month. Servicers will have to clear out their backlogs, and those that don’t abide by the guidelines could face “financial penalties,” said a Treasury spokeswoman. But Treasury has been vague [2] on how big those penalties will be.
Although homeowners in the trial modifications have had the benefit of seeing their monthly payments drop (by an average of $522), there are adverse consequences [3] when a trial drags on. A homeowner’s credit score can take a hit. Because a homeowner is not making a full payment, the balance of the mortgage grows during the trial period, putting someone who was behind when the trial began even further behind if it fails. The homeowner can be in worse shape if the modification fails since she’s been making the trial payments instead of saving for the possibility of foreclosure. And last but certainly not least, those homeowners suffer the stress and fear of not knowing whether they’ll be able to keep their homes.
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