By Renae Merle
Washington Post Staff Writer
Friday, December 11, 2009
The government's foreclosure relief program is sputtering, according to government data released Thursday showing that the pace of help being offered to struggling homeowners slowed last month and many borrowers are at risk of losing the aid they have already received.
The program, known as Making Home Affordable, faces a frustrating set of challenges. Only about 4 percent, or 31,382, of the 728,000 homeowners currently in the program have moved from the initial, or "trial" phase, to a permanent loan modification. That leaves thousands of borrowers in limbo and in jeopardy of losing their mortgage help because they have not turned in enough paperwork to prove they qualify.
Already about 30,000 homeowners who entered the program have been dropped because they did not qualify after all, did not submit required documentation in time or failed to make all of their payments, according to data released by the Treasury Department. Under the program, borrowers' mortgage payments are lowered to 31 percent of their income for an average savings of $550 a month.Revisions sought
The program's struggles are prompting calls for the Obama administration to alter its strategy for arresting foreclosures. The number of foreclosure filings, which can range from a default notice to a repossession, fell 8 percent last month as lenders delayed action to review whether distressed homeowners qualify for help, according to data released Thursday by RealtyTrac.
But the number of bank repossessions remains high, according to the RealtyTrac data, and foreclosure rates are not expected to peak after the labor market improves, economists have said. Foreclosures have cast a shadow over the housing sector's tentative recovery, potentially dragging down prices through next year.
"How long are you going to hit your head on the wall before you go to Plan B?" said John Taylor, president of the National Community Reinvestment Coalition, a nonprofit housing advocacy group. "It's just that the numbers are not remotely close to making a difference. They have to come up with another strategy, because time is not on their side."
Treasury officials warned lenders last week that they could face penalties if their performance in the program did not improve. But government officials are currently focused on pushing lenders into moving more borrowers from the initial stages of the program into permanent loan modifications. About 21 percent of the homeowners enrolled in the program have made their payments and submitted all required documents, but are waiting for their mortgage servicer to move them into a permanent modification, according to the Treasury.
"Our challenge now is to keep the pressure on," William Apgar, a senior adviser at the Department of Housing and Urban Development, said in a statement.
Wells Fargo has moved about 3,500 homeowners into a permanent modification under the program. Bank of America has modified more than 157,000 loans, but fewer than 100 homeowners have received permanent modifications. Bank of America said in a statement that it expects to move more homeowners into permanent modifications this month: "This clearly demonstrates Bank of America's commitment to this important program and to our distressed customers who are seeking solutions to sustain homeownership."
Lenders say the backlog can be blamed on the significant amount of required paperwork, which includes hardship statements, pay stubs and bank statements. Approval can be held up by the lack of a single signature.
Lenders point to efforts
The industry has dispatched nonprofits to go door-to-door to help homeowners complete their application packages and has sent many prepaid Fed-Ex packages so homeowners can return documentation, industry officials have said. "It should continue to get better as people put all the stops," said Faith Schwartz, executive director of Hope Now, an alliance of lenders.
But some homeowners say the confusion lies with the lenders. Lawrence Ingalls of Santa Ana, Calif., began asking J.P. Morgan Chase for help on his mortgage in January when he learned that the market research firm where he worked was likely to close. The firm laid off most of its employees in March, and Ingalls' new job came with a nearly 40 percent pay cut. He is now dipping into his savings, borrowing from family members and falling behind on his property taxes to keep up with his mortgage payments.
For the past 11 months, Ingalls said, he has submitted and resubmitted parts of his application: "Every single month, without fail, I have to resend something."
He has faxed more than 100 pages of tax returns at least twice. Two weeks ago, J.P. Morgan Chase again requested a current utility bill to prove he still lived in the property. He now scans the requested documents so he can e-mail them as well as send a fax and a paper copy by mail.
"They tried to cancel my entire application in September because of incomplete paperwork," he said. "But the lost document thing in my experience is totally on their end."
J.P. Morgan Chase said Ingalls did not meet the financial requirements, and he was denied a modification several months ago. But the company has completed nearly 600,000 modifications this year and is working to get required documents from distressed borrowers.