U.S. Loan Program May Have Made Things Worse

Experts: $75 billion effort to fight foreclosures has hurt some homeowners

by: Peter S. Goodman
New York Times
Jan. 1, 2010

The Obama administration's $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program "Making Home Affordable", has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in an often-futile efforts to keep their homes, which come see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Read the rest of the article

NY Times Says What we've All Been thinking

Lucrative Fees May Deter Efforts To Alter Loans
Many mortgage companies are reluctant to help strapped homeowners

By Peter S. Goodman
updated 3:30 a.m. MT, Thurs., July 30, 2009

This week, the Obama administration summoned mortgage company executives to Washington to demand they move faster to lower payments for homeowners sliding toward foreclosure. Treasury officials called on the companies to hire and train more people quickly to field applications for relief.

But industry insiders and legal experts say the limited capacity of mortgage companies is not the primary factor impeding the government’s $75 billion program to prevent foreclosures. Instead, it is that many mortgage companies are reluctant to give strapped homeowners a break because the companies collect lucrative fees on delinquent loans.

Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees for insurance, appraisals, title searches and legal services.

Read the rest of the story at MSNBC.

Obama foreclosure fix open for business

Federal officials release details of $75 billion loan modification and refinancing programs. Borrowers can start contacting loan servicers.

The Obama administration's foreclosure prevention program is open for business.

The multipronged fix calls for companies to help as many 4 million struggling borrowers by modifying loans so monthly housing payments are no more than 31% of monthly gross income.

Separately, homeowners who haven't missed a payment can refinance into lower-cost loans even if they have little or no equity. This is expected to help up to 5 million homeowners.


This plan will help make home ownership more affordable for nine million American families and in doing so, help to stop the damaging impact that declining home prices have on all Americans," said Housing Secretary Shaun Donovan.

Borrowers can now contact their servicers to see whether they are eligible for assistance.

The loan modification plan focuses on people who are behind in their payments or are at risk of default.

Federal officials clarified the definition of "at risk" as those: suffering serious hardships, declines in income or increase in expenses; facing an interest rate hike; having high mortgage debt compared to income; owing more than their house is worth, or demonstrating other reasons for being close to default.

To participate in the loan modification plan, borrowers must:

• have obtained their mortgage before Jan. 1, 2009;
• have a primary mortgage of less than $729,500;
• live in the property;
• fully document their income by providing tax returns and pay stubs;
  sign a statement of financial hardship; and
• go for counseling if their total household debt - including auto loans, credit cards and alimony - totals more than 55% of their income.
  

The modification program will be in effect until the end of 2012. Officials also unveiled more details on how servicers will modify the loans. First, they must reduce interest rates so that borrowers' total house payments are not more than 38% of their monthly income. The government will then subsidize servicers dollar-for-dollar to lower that ratio to 31% - but the interest rate can't go below 2%.

If rate reductions aren't enough to get payments to 31% of income, a lender can extend the term up to 40 years, or shift part of the principal to the end of the loan at no interest. Servicers also have the option of reducing the loan's balance.

The program also includes a new provision to eliminate borrowers' second mortgages.