I recently wrote about the Making Home Affordable Loan Modification program that the Obama administration passed. The program was put in place to help homeowners to get some help in tough situations where they were having a hard time making their regular mortgage payments. If they were able to prove that they needed help and their mortgage was more than 31 percent of their income, the interest rates on their loans could be substantially be reduced, and in some cases principal reduced.
Government Modification Program Effectiveness Questioned
Since the program started over 1.3 million homeowners have enrolled in the program in order to get some help and get their mortgage payments reduced. The problem is, the program just hasn't been as effective as hoped, and the tide of foreclosures has continued.
Nearly half of the 1.3 million homeowners who enrolled in the Obama administration's flagship mortgage-relief program have fallen out.
The program is intended to help those at risk of foreclosure by lowering their monthly mortgage payments. Friday's report from the Treasury Department suggests the $75 billion government effort is failing to slow the tide of foreclosures in the United States, economists say.
More than 2.3 million homes have fallen into foreclosure since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year.”The government program as currently structured is petering out. It is taking in fewer homeowners, more are dropping out and fewer people are ending up in permanent modifications,” said Mark Zandi, chief economist at Moody's Analytics.
So of the 1.3 million who enrolled in the mortgage modification program, almost 50 percent of the people have fallen out of the program either because they couldn't keep up with their reduced payments, didn't file their paperwork correctly, or some other reason. Many have complained that the program is a complete mess with neither the government or the banks knowing which end is up.
Many borrowers have complained that the government program is a bureaucratic nightmare. They say banks often lose their documents and then claim borrowers did not send back the necessary paperwork.
The banking industry said borrowers weren't sending back their paperwork. They also have accused the Obama administration of initially pressuring them to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.
So everyone is blaming everyone else for the problems the program has had. Borrowers blame the banks and the government. The banks blame the consumers and the government. The government blames them both. My guess is that the program was ill conceived from the get-go, and it was destined for failure. At this point only $490 million has been spent out of a potential $75 billion the government has made available to help stem the wave of foreclosures.
Approximately 630,000 people who had tried to get their monthly mortgage payments lowered through the government program have been cut loose through July, according to the Treasury report. That's about 48 percent of the those who had enrolled since March 2009. And it is up from more than 40 percent through June.
Another 421,804, or roughly 32 percent of those who started the program, have received permanent loan modifications and are making their payments on time.
RealtyTrac reported that the number of U.S. homes lost to foreclosure surged in July to 92,858 properties, up 9 percent from June. The pace of repossessions has been increasing and the nation is now on track to having more than 1 million homes lost to foreclosure by the end of the year. That would eclipse the more than 900,000 homes repossessed in 2009, the firm says.
To me it makes sense that only 32 percent of homeowners who entered the program have been able to get permanent modifications. After all, many of them only entered the program because they didn't have enough income to make payments. Where is the money going to come from even if the payments are reduced?
What do you think about the Making Home Affordable Loan Modification program? Do you think it was destined to fail? Have you tried to take part in the program only to get the run around? Tell us your thoughts on the MHA Modification program in the comments.