The U.S. has miles to go with its mortgage modification plan
Filed under: JP Morgan Chase, Bank of America
With foreclosure filings occurring every 13 seconds in America, is the Obama Administration really moving fast enough to get help for homeowners in trouble? It took about nine months to get 500,000 of them started on the road to mortgage modification.A half-million homeowners helped is surely progress, but with 2 million foreclosures this year and economists predicting that number will hit 6 million over the next three years, the government's program is looking more and more like half-empty sandbags thrown against a steadily rising flood.
In a Congressional report released Friday, panel members raised questions about the scope, scale and permanence of the mortgage rescue efforts. It concludes that the Treasury Department's Home Affordable Modification Program "is targeted at the housing crisis as it existed six months ago, rather than as it exists right now." The biggest flaw cited is that current strategy lacks a clear path to help those facing unemployment.
The report goes on to note that when planning for the modification program, Treasury was primarily dealing with subprime mortgage loans in foreclosure, but today -- thanks to the soaring unemployment rate -- families who took out conventional, fixed-rate mortgages and made down payments of 10 percent to 20 percent are now also facing foreclosures.
In response to the jobs concern, Treasury Department spokeswoman Meg Reilly could only promise that the department was continuing to study further ways to help unemployed homeowners. But Administration economists have known the unemployment rate was going to be near or top 10 percent for months now. Continuing to study this problem won't help stem ongoing foreclosures.
While it's good to see mortgage servicers -- those who collect mortgage payments and keep the records -- step up and finally improve their statistics, even the best performer, Citigroup (C), has started trial modifications for only 33 percent of its eligible borrowers in the first eight months since the program was announced, according to The Wall Street Journal. JPMorgan Chase (JPM) takes second place with 27 percent of its eligible borrowers beginning trial modifications. Wells Fargo (WFC) has 20 percent, and Bank of America (BAC) has 11 percent.
Participating homeowners must make payments on time for three months and provide required paperwork to get permanent modifications. No one knows how many of the trial modifications will be successful. The best guess came from Steve Bailey at Bank of America who told the Journal he thinks about 50 percent will succeed in getting a full modification. Still, some of those mortgage holders are likely to end up as foreclosure risks again in the next year or two.
When the Obama Administration announced its plan with lots of fanfare, it hoped to help 4 million borrowers before the program ends in 2012. Based on that goal, the government has reached about 12.5 percent of the people it wants to help. That's probably too slow a pace to make a really strong impact on the foreclosure rate.
In a related story, concerns are now being raised about the FHA and its risk of needing a bailout as well. Former Fannie Mae executive Edward Pinto told the House Financial Services subcommittee on Thursday that the FHA will suffer $40 billion in losses from foreclosures and will be unable to cover its bad loans from the insurance fund. He expects the FHA to need taxpayer help. FHA Commissioner David Stevens responded that the agency won't need a bailout and believes it has enough funds on hand to meet future loses.
The FHA is facing additional scrutiny because it's the only lender making loans with low down payments to people who lack good credit. The FHA does require income verification, which wasn't necessary for most subprime loans, so its mortgages aren't as risky as the subprime loans that started this crisis. Pinto, and some Congressional FHA critics, want the FHA to raise its required down payment to 10 percent (it's now 3.5 percent), reduce the cap on how much money can be borrowed, and require FHA-approved lenders to co-insure.
The FHA's Congressional supporters say they don't see a need for changing the FHA's mortgage requirements. Subcommittee Chairwoman Maxine Waters (D-Calif.) agreed with Stevens and said the FHA should continue to be a major source for home mortgage support. Let's hope she's right.
Lita Epstein has written more than 25 books including The 250 Questions Everyone Should Ask About Buying a Foreclosure and The 250 Questions You Should Ask to Avoid Foreclosure.
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Reader Comments (Page 1 of 7)
10-09-2009 @ 12:12PM
Harley said...
All of these issues; health care, foreclosures, unemployment, are a direct result of government inaction.
Businesses are taxed too much, we are regulated too much, and we are forced to compete against subsidized industries in countries who tarriff our products when we try to export, but have virtually free access to us for their products.
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10-09-2009 @ 4:16PM
ANNE said...
I totally agree with your statement. This country can't afford this President or congress, they will and are in the process of bankrupting this country with their socialist ideas, and all the czars they have put into office.
10-09-2009 @ 5:14PM
danzillo4 said...
Harley, I disagree totally, these problems health care, foreclosures, unemployment ARE THE CAUSE OF GOVERNMENT INTEREFERENCE AT EVER LEVEL...Its in their plan...
10-09-2009 @ 5:45PM
USAvet said...
Actually, the examples you cite are due to government 'actions' as they oversee these areas. What's more frightening is they are more involved than ever and their proposed solutions are worse ! LOL. Yes, America is in deep trouble, especially if you are unemployed and looking for work. If you happen to be out of work and struggling, visit the following website to join fellow Americans help one another and get back on their feet: www.americansoutofwork.weebly.com. This united network enables you to participate and benefit to make things better for you and if you have a family. You have nothing to lose and everything to gain. Time to take some personal action and make everyday truly a great day - even in these terrrible times !
10-09-2009 @ 8:38PM
Chuck said...
Think about it Harley, Healthcare, foreclosures, and unemployment are a direct result of actions by the US Congress. Taxes, regulation, tariffs, subsidy's, are all issues related to the corrupt government of the US. Tax laws written by tax cheats. So while we sit and ponder who's the best, repukes or democraps, they're raping us like cheerleaders at a biker rally.
10-10-2009 @ 10:35PM
Dirk said...
Harley,
Your premise is ridiculous!! It's the fault of govt?? Get real. The banks and Wall Street did the implausible and idiotic. And we the taxpayers have been dumb enuf to be the bailout mechanism.
Unemployment and foreclosures are clearly a direct result of these actions (sub-prime and toxic loans) by the financial community.
Health care has been a problem for decades. The reason we as a nation are rated 37 out of 37 is because the public won't demand single-payer (to the govt, just like medicare) much like the 37 other countries.
It's a mystery to me why our nations voters put up with it. The highest infant mortality in the developed world (and even worse than some undeveloped countries)???? Some day soon, I hope, we'll wake up and stop the silliness and dumbness in the electorate minds. Backing someone like Sarah Palin is about as stupid as a voter can get. She lies, makes up stories and cuddles up to the uninformed. We deserve what we get as long as keep that up!
10-09-2009 @ 12:22PM
Donovan said...
I would think it would be in the banks better interest to allow homeowners facing temporary difficult times, to remain in their homes. And perhaps make what ever affordable payments their able to make to the bank. Even if the bank were to revise the current homeowners mortgage to a temporary (rental) situation. Both the homeowner, and the bank would most likely benefit in the long run. If the bank forecloses, the bank gets ZERO dollars a month, the home falls in to disrepair, and the bank is still responsible for keeping the property insured. Why not just let the homeowner pay what they can, maintain the dwelling, and hopefully in 6 to 12 months the homeowner will be financially stable again. Its a win win for both the homeowner and the bank. Just a thought.
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10-09-2009 @ 5:24PM
Poppa said...
You are right on the subject. Unfortunately the super-egos in Washington can't see past the end of their nose.
There are ways to fix a lot of America's woes, but they are not being considered by the politicians in Washington.
Just remember they are still just a bunch of lawyers.
10-09-2009 @ 7:55PM
jim said...
My 2 questions are: Since the mortgages were bundled by the banks into Mortgage backed securities (MBS), and these securities failed and the investor that owned these MBSs (as banks sold these MBSs) collected the insurance on the MBS (mostly from insurer AIG), should not the mortgage be owned by the insurance company (insuror of MBS) and as the Gov't owns AIG (biggest insuror of MBSs), shouldn't the Gov't now own the mortgages? and if the Gov't does own the mortgage, how can the bank foreclose as they are not the owner of record of the mortgage? Tell all your friends to question the court as to the LEGAL ownership of the mortgage. This has been done in Florida already to great success.
10-10-2009 @ 5:56AM
jack said...
Your idea is not feasible. This would be Socialist in doing. The reason you have so many foreclosures is people losing thier jobs. Direct actions, that have led to this is no Equal Trade. All our manufacturing is being moved overseas. When you have everything imported, and no manufacturing base, you have lost an important tax bracket.
Our Government (both Republican and Democrat) has failed us.
10-10-2009 @ 9:08AM
Al said...
I know young families who bought homes during the height of the madness when prices skyrocketed. They were so worried that if prices kept rising they would never afford their own home. They never properly understood the 'arm' principle and when it kicked in, they had to find substantially more money, but their incomes remained static. Their homes are now worth 50% less than when they purchased them on the open market. The banks have collected a substantial sum from them in the last 3/4 years in monthly payments (all interest). Nothing has come off from the principle loan. They have tried to negotiate for a full year with no results. They now have no alternative but to abandon their home. The bank still wins because they will own the home which they can dispose of for a much lesser amount as the bank has already received the 3/4 years of payments, which is equal to the amount that the house has depreciated. So the bank wins. The young families lose their dream of home ownership and have to return to living with parents or renting; and they are responsible young people, taken advantage of, by very clever marketing b/s, at the time when they applied for a mortgage loan.
The real kicker here, is that the poor old banks got the bailout money but nothing for the individual in this situation. This has little to do with the government; it boils down to greedy, unscrupulous banking practice. Greed, greed, greed will be the ruin of this scenario which will take years to fix.
It would be so much more moral for banks to negotiate new monthly payments and allocate the amounts already paid in the last 3/4 years to a real reduction off the principle originally borrowed. But this will never happen because of greed.
10-10-2009 @ 7:08PM
baileybarbara2 said...
this is the best thing that I have heard in nine months.
the banks really are not working with the homeowner. there
is one excuse after the other. I receive 5 to 20 applications
weekly, and unable to help homeowners, because the bank
are not willing to work with them. If you are behine in your
mortgage, then you credit score will be the 620 that banks
are requireing.
10-09-2009 @ 12:37PM
Rob said...
Unemployment is the underlying problem, and this foreclosure problem is only one of the symptoms, treating symptoms don't cure the ailment. If we don't get people back to work with secure and well paying jobs, rewriting their mortgage is only delaying the inevitable.
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10-09-2009 @ 12:36PM
Jim said...
Well here's a surprise the government has a program that's failing to accomplish anything.
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10-09-2009 @ 12:39PM
steve said...
why would anyone be suprised hasnt anyone noticed that everything the government gets involved with gets screwed up. The whole whitehouse senate and congress needs to be voted it 95% of these people couldnt run a snowball stand . VOTE THEM ALL OUT IN 2010 AND 2012
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10-09-2009 @ 1:59PM
Sean said...
We did vote out the losers. The GOP religious dopes who had nothing to bring to the table other than bring prayer back to school. Now, we need to fix the problems those dopes gave us.
Look up DEREGULATION. And for those whining about lower taxes. Those at the top were the benefit of lower taxes for years. What did they do? Outsource to foreign conutries. The "trickle down" BS has failed every GOP president that employed it. Reagan, Bush 1 and 2.
History doesn't lie.
10-09-2009 @ 12:40PM
kat said...
We are already seeing more and more people losing their homes has anyone tried to do a restructure of their loan to keep their home, not easy and most cases you can't do it very easy unless you hire someone to do it for you which can cost thousands of dollars, which if people had they wouldn't be in the place they are already in.
So they continue to struggle to keep everything paid and now are having to deal with the credit card companies taking them to the bank (ha ha)!, and I mean to the bank do you think this is going to help the housing situation it is only going to make matters worse in the long run. Who do you think they are going to stop paying first when they can't pay the bills? At this point I would say its a toss up!
When is the madness going to stop!
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10-09-2009 @ 9:58PM
dbrooks said...
don't go to a third party to do a loan mod, because they have to go to the lender...so as a home owner work this out directly with the lender and take the money you would have spent and do a forebearance or pay on the mortgage..i work in the mortgage industry and deal with these situations everyday all over the us
10-09-2009 @ 12:41PM
Jim said...
That is not only a good thought, but it is really the solution having the banks help in keeping people in their homes. If they take it one step further they could lower credit card interest rates, let the consumer pay down their principal and be able to spend again. There are a hundred ways to skin these cats without the help of the jack asses in Washington mucking things up with their useless programs.
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10-09-2009 @ 1:04PM
ACTIONMAN said...
How can all these government programs expect the
tax payer to foot the bill if everyone is not employed?
Nothing has been done by this administration to create
JOBS as promised.They keep saying the recession is
almost over but 10 to 15 % do not have jobs.
the recession will be over when unemployment is down to 5.5%.
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