RISMEDIA, March 29, 2010—(MCT)—The Obama administration took a series of steps recently to fortify its $75 billion effort to modify mortgages and plans to unveil more changes—including a push to reduce principals on difficult loans—to help struggling homeowners and cut down on foreclosures.
In announcing the renewed effort, the administration acknowledged that the year-old program known as Home Affordable Modification Program (HAMP) hasn’t done enough. By the end of December, 2009, it had permanently lowered monthly payments for only about 170,000 borrowers out of the expected 3 million to 4 million it was aimed at covering through 2012.
Even so, the program and separate efforts by banks and other lenders to rework overdue loans have pushed the rate of new foreclosures down 15.4% in the final three months last year, according to a recently released federal report. But the report also sounded alarms about a potential looming tide of foreclosures. The number of borrowers who were 90 days or more past due on their mortgage payments, a key measure of future defaults, swelled 20.4% in the last quarter over the previous quarter.
Worse, the modifications, while delaying the foreclosure process, did not appear to be a long-term solution: About 52% of those with modified loans defaulted again after nine months, said the report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision, which cover about two-thirds of the outstanding home loans.
The time bomb of delinquencies and repeat defaults has focused more attention on the administration’s Home Affordable Mortgage Program, which President Barack Obama launched with great fanfare more than a year ago.
At a House hearing, frustrated Democrats and Republicans labeled the program a bust so far, echoing a stinging report this week by a government watchdog. “This program is a failure and a waste of taxpayer dollars,” said Rep. Patrick McHenry, R-N.C.
Rep. Edolphus Towns, D-N.Y., chairman of the House Oversight and Government Reform committee, warned the Obama administration it needed to act quickly to fix the program. “I really do believe we can do a whole lot better than what we’re doing to keep people in their homes,” he said.
Assistant Treasury Secretary Herbert M. Allison admitted that modifying mortgages has been more difficult than administration officials had anticipated.
“Certainly we’ve seen a lot of frustration with this program since its inception,” he told lawmakers. “We did not fully envision the challenges we would encounter.”
Among the changes to take effect June 1, 2010 is a prohibition on mortgage servicers from starting or continuing foreclosure proceedings on a borrower who enters the Home Affordable Modification Program.
Companies servicing mortgages also must screen every borrower who has missed two or more payments to determine whether the borrower is eligible for the program. If so, the servicer “must pro-actively solicit those borrowers” to participate. Those companies also are required to make quicker decisions about eligibility and to process documents quickly.
In addition, Allison said, the administration was preparing to move forward with an initiative to modify second mortgages after four of the largest mortgage servicers—Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co.—agreed to participate.
That initiative would be part of a greater administration push to have lenders reduce the amount of principal owed on delinquent loans, an action analysts said is a key to limiting foreclosures.
Administration officials will announce greater incentives for servicers to write down mortgage principal as well as to allow jobless homeowners in the program to skip three months of payments, according to an industry executive who requested anonymity because the changes had not been made public.
“Principal reduction is probably the last remaining significant vital step that needs to be taken in loan modifications in order to make those modifications stick,” said Stuart A. Gabriel, director of the Ziman Center for Real Estate at University of California-Los Angeles.
Many analysts believe the problem of negative equity—about a quarter of U.S. homeowners with mortgages owe more than their homes are worth—will make it difficult for modifications to succeed, since even a slight economic setback could cause those borrowers to abandon their loans and homes.
First American CoreLogic, a Santa Ana, Calif., real estate research firm, estimated that the typical homeowner who is under water won’t see home value rise above the loan amount at least until late 2015.
In some extremely depressed markets, such as Las Vegas, Detroit and parts of Florida, it might take until 2020 or later for those borrowers to regain any ownership stake in their homes, the research firm said.
Trying to address that issue, Bank of America said that it would offer to reduce $3 billion in principal over a five-year period for certain borrowers with adjustable-rate mortgages from Countrywide Financial Corp., the former No. 1 mortgage lender that Bank of America acquired in 2008. The bank said it hoped its effort would serve as a model for other mortgage servicing companies.
Such efforts may be too little, too late, according to analysts at the financial research firm Institutional Risk Analytics in Torrance, Calif., who said the latest refinements of the government’s anti-foreclosure efforts show little prospect of success.
“This is a ‘kick the can down the road’ action at best,” said Institutional Risk Chief Executive Dennis Santiago. “It defines a series of procedural hoops that need to be jumped prior to allowing foreclosure to complete. Yes, it will keep people in their homes longer. However, there remain no provisions for relief of the debt.”
The Home Affordable Mortgage Program, which was launched last spring, got off to a slow start. By the end of February, just 168,708 mortgages had been permanently modified. Allison said more than 1-million three-month trial modifications have been started, but conversion to permanently reduced payments has been difficult amid complaints from homeowners about delays, lost paperwork and bureaucratic runarounds by lenders who process the modifications.
(c) 2010, Los Angeles Times.
Distributed by McClatchy-Tribune Information Services.
