FORECLOSURE PLAN NOT WHAT EXPECTED
The government set expectations sky-high earlier this year when President Barack Obama launched an effort to help up to 9 million homeowners avoid foreclosure.
Now, reality is setting in. The effort, dubbed Making Home Affordable, appears on pace to make a far smaller impact on the foreclosure crisis than officials had hoped.
Mark Zandi, chief economist with Moody's Economy.com, expects the program to help around 2 million to 3 million borrowers through modified and refinanced loans. “It's just barely enough to quell the crisis and allow us to muddle through,” he said.
Homeowners are upset that they can't get assistance more quickly – or at all – even as lenders insist they are doing their best to handle an unprecedented surge in calls for help.
Meanwhile, foreclosures remain extremely high. More than 358,000 foreclosure-related filings were recorded in August, RealtyTrac Inc. reported Thursday. That number was up 18 percent from a year ago and flat from a month earlier.
Here are some questions and answers about the status of the foreclosure-relief plan.
How many borrowers have been helped by the government programs so far?
As of last month, more than 360,000 borrowers were enrolled in three-month trial loan modifications, out of about 570,000 who received offers. Only about 85,000 homeowners have had their loans refinanced under the Obama plan.
What's the difference between a refinanced loan and a modification?
When you refinance your home loan, you sign a new contract with your lender. A loan modification involves changes to the existing contract such as lowering the interest rate or extending the term from 30 years to 40.
Why has progress on loan modifications been so sluggish?
The program requires big changes for the mortgage industry. Modifying thousands of loans means reworking computer systems and hiring and training thousands of workers to handle calls. Plus, the government has changed and expanded the program several times.
“There's a lot of hard, behind-the-scenes, nitty-gritty work that needs to be done,” said Mike Larson, a real estate analyst with Weiss Research. “It's frustrating to consumers, and I think that's understandable.”
Some lenders acknowledge that it hasn't been easy. Over the past six months, “some customers have been challenged with getting clear, timely communication from us as the guidelines and the requirements for the various programs have continued to change,” Mary Coffin, executive vice president of Wells Fargo's mortgage-servicing business, told House lawmakers at a hearing Wednesday.
Why haven't lenders refinanced more loans?
Initially, the administration's refinancing program was limited to borrowers with loans backed by mortgage finance companies Fannie Mae and Freddie Mac who owe up to 5 percent more than their home's current market value.
That excluded many people in areas like Las Vegas and Southern California, where prices have declined by as much as half. So the government decided to expand it to more borrowers.
Fannie Mae is now accepting borrowers who owe up to 25 percent more than their home's value. Freddie Mac will do so next month. These changes may increase the number of refinanced loans.
Is the Obama administration planning any big changes?
It's not clear. But industry executives say they want to work on a possible extension of the program to unemployed homeowners. One way to do so would be to give those borrowers a temporary break on loan payments while they look for a new job.
Also being discussed is how to help borrowers with “pick-a-payment” or option ARM loans, which gave borrowers the ability to defer some of their interest payments and add them to the principal.
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