It would be unfair to say that the Obama administration hasn’t been trying to restore the health of the housing market. Unfortunately, it would be inaccurate to say that its programs are having much success. The loan modification program is a worrisome case in point.
On February 18, 2009 the Treasury Department announced the Homeowner Affordability and Stability Plan. The Loan Modification portion of that program had a goal "to keep up to 3 to 4 million Americans in their homes by preventing avoidable foreclosures."
August 4, 2009 the administration released its first monthly Servicer Performance Report which claimed that the program was "on pace." It noted that by July more than 230,000 trial modifications had begun. By November, however, the administration announced a campaign to pressure mortgage companies because, said assistant Treasury Secretary, Michael Barr, "The banks are not doing a good enough job."
Recently, a detailed report of the program’s progress was made available on the website . The report showed results through December, 2009. As of December, 66,465 permanent loan modifications had been granted. Another 46,000 had been approved but had not yet been accepted by the borrowers. Now, in many ways those are nice numbers; and many of us – not all, I know – would be happy for the borrowers. But, in the context of the entire situation, those numbers are rather paltry. Taken together they represent only 3% of the estimated eligible mortgages, and only 12% of the modification programs that have been started. More than ½ million trial modifications had been started by August; yet, by December almost 800,000 were still in the trial stage.
The slow pace and the low ratio of trial modifications becoming permanent modifications does not bode well for the administration to meet its goal of keeping 3 - 4 million borrowers in their homes over the next three years.
The problem isn’t a lack of participation by lenders. 107 servicers have signed up so far in addition to approximately 2300 lenders who service Fannie Mae and Freddie Mac loans. It is estimated that 89% of eligible mortgage debt outstanding is covered by participating servicers. Admittedly, though, their performance is uneven. Those who have the highest percentage of trial and permanent modifications are Citimortgage (47%), Saxon Mortgage Services (46%), and GMAC (44%). Not quite so stellar is Wachovia at 3%. Nine servicers have only offered modifications to fewer than 20% of their estimated eligible borrowers.
Nor do all borrowers find the modifications offered to be acceptable. 22% who were offered plans did not take them. There are no data as to why this is so. One can speculate though. For one thing, it is quite possible that eligible borrowers facing seriously negative equity will decide that, even with lower payments, it just doesn’t make sense to try to hang on There is no clear reason why the ratio of permanent modifications to trial plans is so low. Certainly bureaucratic inertia and interminably convoluted paperwork issues may have a lot to do with it.
Inasmuch as plans have been offered to only 35% of estimated eligible borrowers, it would appear that one reason the program isn’t receiving its desired results is simply that many potential beneficiaries are not applying. There could be a number of reasons for this, many of them having to do both with ignorance of the program and with denial of the issues.
Many real estate agents do an exceptionally good job of communicating with the public. They can provide a useful service by making people aware of the attempts to resolve issues related to delinquencies and foreclosure. People should know that they can obtain a good deal of useful information by visiting the MakingHomeAffordable website.
Written by Bob Hunt
February 16, 2010
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