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Banks reluctant to modify home loans

July 28, 2009 at 8:35 AM   |   Comments

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WASHINGTON, July 28 (UPI) -- U.S. mortgage lenders have a narrow window of opportunity to modify loans to help troubled homeowners avoid foreclosure, market analysts said.

Lenders are loath to modify loans for borrowers who fall behind but are willing to make adjustments on their own to catch up with their payments. They are also reluctant to modify loans for borrowers whose financial situation has made keeping up with even with a modified loan impossible, The Washington Post reported Tuesday.

Weeding out those groups, "the number of 'preventable' foreclosures may be far smaller than many commentators believe," a Boston Federal Reserve Bank report said.

The Boston Fed said nearly a third of homeowners who are two payments behind on their mortgages catch up with the payments on their own. Researchers at Moody's Economy.com said 20 percent of those three payments behind catch up on their own.

As the U.S. Treasury initiates a new round of discussions on helping stressed homeowners, weeding out "self-cures" and those who would fall into default a second time would sharply reduce the number of homeowners that would find relief through modified loans, Mark Zandi at Economy.com said.

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