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By Chris Adams, McClatchy Newspapers Chris Adams, Mcclatchy Newspapers Sun
Jan 3, 12:01 pm ET
WASHINGTON 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 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 .
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.)
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 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 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.
The Treasury program could spend as much as $75 billion helping homeowners
avoid foreclosure. The program seeks to pay three parties the company that
services a loan, the bank or investor that owns the loan and the homeowner if
they rearrange the mortgage so the homeowner's monthly payment is more
manageable.
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.
Through November, the Treasury Department said that more than 3 million
homeowners had been sent information on potential modifications, and that 1
million of them had been offered modifications.
Of those, 759,058 trial modifications have been started but just 31,382 have
been finalized into what Treasury calls "permanent modifications."
Part of that low conversion rate is to be expected because a modification's
trial period is three months long. If a homeowner remains current on his or her
payments and provides all the necessary documents, then the modification can
become permanent. A trial modification that started in October, for example,
wouldn't become permanent until January.
However, the conversion rate is low even for trial modifications that have been
under way for more than three months.
As of Oct. 31 , only 4.7 percent of the modifications that had been on the
books for at least three months had become permanent, according to the
Congressional Oversight Panel .
While that doesn't mean that more than 95 percent of trial modifications begun
three months or more earlier "are failures," in the panel's words, it does mean
that the "vast majority" of trial modifications failed to convert on the
schedule that the Treasury originally announced.
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 to permanent modifications.
While most homeowners are making their payments once they're in a trial
modification and the basic structure of the program is working, more needs to
be done to push mortgage servicers to close deals, he said.
"It sounds really boring, but it is basic execution on the ground," Barr said.
"They started to ramp up in the spring, and they have not done a good enough
job to get the documents in that need to come in."
In part, that's because mortgage service companies generally haven't been set
up to execute wide-scale mortgage modifications. Mortgage servicers
historically have been highly automated more akin to collection agents than
to loan officers, and they've needed to change their business model, hire staff
and rethink how they interact with customers, a process that's been slow.
"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."
Faith Schwartz , the executive director of an industry foreclosure-prevention
group called the Hope Now Alliance , said mortgage servicers have made a "huge
investment in staffing and technology," and that much of the past year has been
spent learning and adapting to the Treasury's new program.
"My impression is everything that gets done from here on is going to be much
better than what was done a year ago," she said. In a few months, she said,
many of the modification statistics will better reflect that.
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.
"We saw this movie before in Iowa in the 1980s, and modifications are what
saved rural Iowa ," he said. "Many of them were premised on reduced principal."
In the third quarter of 2009, nearly a quarter of single-family homeowners with
mortgages owed more than their homes were worth, the Congressional Oversight
Panel said. The Treasury's program does little to reduce mortgage principals,
the panel said, adding that "as currently structured," the Treasury program
"appears capable of preventing only a fraction of foreclosures."