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Why critics and homeowners call government loan modification program a failure

Banks and other lenders are still foreclosing on Americans’ homes at a rate that’s outpacing the Obama administration’s main effort to stem the crisis

In fact, while the Treasury Department’s Home Affordable Modification Program, or HAMP, has started the mortgage modification process on almost 760,000 homeowners who are at risk of losing their homes, less than 5 percent of those workouts have become permanent, government data show.

HAMP has made only limited progress for nine months

“HAMP has made only limited progress for nine months now, and the residential foreclosure crisis continues to mount,” said Richard Neiman, the superintendent of banks in New York state and a member of the Congressional Oversight Panel that was formed to monitor the Treasury bank bailout funds that support the mortgage program. He was appointed to the post by the Democratic leadership in the House of Representatives.

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Another member of the oversight panel, U.S. Rep. Jeb Hensarling, a Texas Republican and a critic of the bailout bill, called the mortgage program “a failure.”

In a recent report, he said the administration’s efforts “have assisted only a small number of homeowners while drawing billions of involuntary taxpayer dollars into a black hole.” Hensarling recently left the panel.

Treasury Department knows it needs to do a better job

The Treasury Department acknowledges that its program needs to do a better job of making hundreds of thousands of trial modifications permanent, but an official said the program is making progress and is on track to meet many of its goals.

“I think that if you go back and look at what we said we would do in February, we are on track to meet the president’s goals,” said Michael Barr, an assistant Treasury secretary who helps oversee the nation’s main loan modification program. “We are not going to be able to prevent every foreclosure in the country.”

More than 5 million mortgages have been caught in foreclosure

More than 5 million mortgages have been caught in foreclosure proceedings since the economy began slipping in 2007, and an estimated 8 million to 13 million more could follow in the next five years. The Treasury’s goal is to help modify 3 million to 4 million mortgages in three years, but only about 1 percent of that number have completed the process.

Pace of finalizing loan modification too slow

One of the central problems, the administration and its critics agree, is the slow pace of finalizing the modifications it’s started.

Under the program, mortgage servicers — companies that collect monthly mortgage checks and pay the bank, property tax and insurance — arrange the modifications.

Treasury’s Barr said that mortgage servicers — some them stand-alone companies, others units of big Wall Street banks — simply aren’t doing enough to move homeowners from trial modifications to permanent modifications.

“The servicers need to do a better job,” said Tom Miller, the attorney general of Iowa and a leader in state-level efforts to help desperate homeowners. “They have to make sure they have the full staff, make sure they are trained, make sure they don’t make people wait and wait and wait. We have a tendency to accept the wait, and we shouldn’t.”

Principal reduction needed

Miller also said that mortgage companies need to reduce the principal on some of their loans in order to prevent more foreclosures. That could mean, for example, reducing the balance owned on a $200,000 home to, say, $180,000 if the home’s value has dropped substantially. That, he said, was one of the tricks that helped his state emerge from a severe farm crisis two decades ago.
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Source: http://www.islandpacket.com/news/local/story/1087508.html

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