Saturday, October 10, 2009

"Making Home Affordable" Program Is Not Working

The Obama administration's Making Home Affordable program, you know the one to stop foreclosures on millions of homes, is missing the mark. As was reported in the New York Times by Peter Goodman in today's edition, "The Congressional Oversight Panel, created last year to keep tabs on taxpayer bailout funds, said the Obama administration’s program would prevent fewer than half of predicted foreclosures." (To read his full story go to ).

Mr. Goodman's article discusses the overriding problems with the program, but does not deal with the situation from a day-to-day point of view. In reality, the Obama Program, as it is called, (which is really named Making Home Affordable ("MHA"), and has under it two programs - Home Affordability Modification Program "HAMP" and the Home Affordability Refinance Program "HARP") does not accomplish the goal of home preservation.

Basically, if a homeowner is behind now, but was current as of January 1, 2009, and meets other criteria, the homeowner should be eligible for a loan modification. The modification allows the participating lender to set up a 3 month trial period wherein the borrower makes affordable payments based on actual financial information submitted to the lender, after which the lender can decide to modify the loan or not. The terms are dictated by the lender and may not ever become permanent.

The most disturbing part of the situation is that homeowners are going into foreclosure at a record rate, and the programs at best are being outpaced by the foreclosures by 3 or 4 to 1. Elizabeth Warren, head of the TARP Oversight panel, estimates that even when everything is working at full speed, the programs will lose the battle against foreclosure schedules by 2 to 1. The honest homeowner who "bought" a mortgage without really understanding the terms and was sold "a bill of goods", like thinking he/she had a 30 year fixed mortgage when in reality the rate changed after 3 years, has no recourse.

The lenders, Wall Street folks, and investors, who pushed and packaged these loans, and now do not want to take any loss of income, are not being held accountable. They still have no risk of loss. Taxpayers, meaning the homeowners who are in trouble, are the ones paying the entire cost of the programs, YET CANNOT EVEN GET HELP IN MOST CIRCUMSTANCES.

With the jobless rate being reported at near 10%, which means it is probably over15% (people off benefits and not looking anymore are not reported), and layoffs continuing, more and more people will be a situation where foreclosure is inevitable. The MHA could work, but not without the full cooperation from the lenders and mortgage servicers. With no one being in charge to enforce ACTIVE participation in MHA, and there being no regulator with teeth to force compliance, the people who own the loans will not allow the programs to work. They will lose money if modifications become permanent. Guess who wins this battle.

For now, it's the only game in town. If you are facing foreclosure, apply for an MHA program. Once it's determined you are eligible, any foreclosure action is put on hold while your application is considered.

(A correction from 9/28/2009 post: I incorrectly stated that Rep. Barney Frank was from Western MA. He is, of course, from Eastern MA)

Author's Copyright by Richard I. Isacoff, Esq, October 2009


Bill said...

You say the banks lose if they modify a loan. I say the banks lose if they don't modify. If the loan is $100,000 underwater toda and you add $50,000 in foreclosure cost, the bank is killed.

If the bank tries a loan modification and it works there is a chance to get most of its principal bank. If prices go up it is better for everyone. If the bank goes to a short sale on failed loan modifications, then they save the legal costs. The banks have to learn how to deal with their bad loan or they suffer just like the borrower. Do not assume a bank comes out ahead in a foreclosure.

Anonymous said...

Here is the reason why HAMP..Hurting Any Modification Possibility" Program...