In contrast to an optimistic administration assessment, a Congressional oversight panel paints a gloomy picture of US government foreclosure prevention efforts. A newly released white paper questions whether the Making Home Affordable Program will result in permanent home preservation.
According to the October 2009 report, ”Rising unemployment, generally flat or even falling home prices, and impending mortgage rate resets threaten to cast millions more out of their homes with devastating effects on families, local communities and the broader economy.”
The white paper states that the US is in the third year of the worse foreclosure crisis since the Great Depression, with one in eight homeowners now behind on their mortgages, more than 1.8 million homes lost to foreclosure from July 2007 – August 2009, and 250,000 new foreclosures each month. It looks at three specific areas of concern:
- Scope: The US Treasury Department hopes to prevent 3-4 million foreclosures through Home Affordable Modification, HAMP, to reduce monthly mortgage payments. The report notes that the program is limited to specific types of mortgages. The panel concludes that most of the pending foreclosures will be with payment option adjustable rate mortgages and interest only loans that will exceed the HAMP eligibility limits.
- Scale: The white paper recognizes that it takes time to put the infrastructure in place to handle loan modifications. The panel does concede that the 500,000 helped borrowers are significant yet it questions the administration’s assertion that it’s a high enough number to impact the foreclosure rate. The report calls for a rapid increase in aid.
- Permanence: HAMP usually begins with three month test run of reduced mortgage payments before initiating a long term cut. 362,348 of these trials have been implemented, but as of September 1st, only 1,711 permanent loan mods have been locked in place. The report points to anecdotal evidence of borrowers dumped from the trial because of misplaced paperwork and payments sent to wrong addresses. Another cause for concern is that under HAMP, many mortgage modifications are only for five years.
With one third of all home borrowers underwater with their home’s value, the report asserts that a slide into negative equity for an increasing number of borrowers could prolong the crisis for years.
Recommendations
The panel urges that the US Treasury must be fully transparent about the program’s effects. The white paper suggests drawing on more localized information on assessing a home’s value. It proposes more uniform modification procedures and increased accountability for loan servicers that fail to comply with the government programs.
The white paper was issued by the congressional oversight panel charged with monitoring the effects of the Emergency Economic Stabilization Act. For details, here is the entire 210 page white paper.
If you qualify for the Making Home Affordable Program, get your application started sooner rather than later. It’s an imperfect process, but ignoring reality will only make your situation worse.
