U.S. foreclosure program helping more people, but how much still unclear

By Renae Merle
Washington Post Staff Writer
Wednesday, November 11, 2009

The number of homeowners getting help from the government's massive foreclosure program is growing, according to data released Tuesday, but it is unclear how many of these borrowers might still lose their homes.

Under the effort, called Making Home Affordable, lenders are paid to lower a borrower's mortgage payments. The program has struggled since its launch in March, with homeowners initially reporting difficulties reaching lenders.

Through October, 650,994 delinquent borrowers have received help, or 20 percent of those potentially eligible, according to the Treasury Department. That is up from 487,081 through September. Most are in the states hardest hit by the housing crisis. About 134,609 of those who have had loans modified under the program -- typically through an interest-rate reduction -- are in California and 82,614 are in Florida.

In the Washington region, Maryland homeowners have received the most modifications, 21,634. About 16,980 Virginia homeowners have had their loans modified, as have 1,177 borrowers in the District.

The performance of major lenders in the program remains uneven. Citigroup has modified about 40 percent, or 89,000, of its delinquent borrowers who are potentially eligible, while Bank of America has modified about 14 percent, or 137,000.

"We're reaching borrowers at a larger scale than any other modification program to date, but there is still much more work to be done," Treasury Assistant Secretary Michael S. Barr said in a statement.

The data account for borrowers who have entered the trial phase of the modification process, during which they must provide significant documentation to verify that they qualify and make several payments. Homeowners must pass the trial period to make the changes permanent. Initially the administration set up a three-month trial period, but it was lengthened when lenders complained about the difficulty in getting some borrowers to provide complete information.

Housing advocates are questioning how many of the large number of borrowers who have received a loan modification on a trial basis will ultimately fail to secure a permanent workout. In an October report, the Congressional Oversight Panel, which is monitoring the government's Troubled Assets Relief Program, found that fewer than 2,000 of the nearly 400,000 borrowers in the program at that time had moved into a permanent modification.

The Obama administration recently streamlined the application process, which will be helpful, said Faith Schwartz, executive director of Hope Now Alliance, which follows foreclosure issues. But "I know it's been challenging."

Lenders can try to fit borrowers who fail the trial period into other loan-modification programs or allow them to defer payments for a short period, she said. "Every stop should be pulled out to avoid foreclosure at every stop," Schwartz said.

Even as the administration says the program is gaining momentum, questions remain about the efficacy of the $75 billion effort. Some economists have questioned how many of the borrowers who have received a modified loan under the program will default later. Also, it is unclear how well-suited the plan is to addressing what many now consider the biggest driver of foreclosures: unemployment. With little or no income, borrowers have fewer options to save their home, housing advocates say.

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