Spike seen in number of homeowners who lost federal mortgage aid
Tuesday, May 18, 2010
Homeowners taking advantage of mortgage aid under a federal foreclosure-prevention plan are being dropped from the program at an increasing rate, potentially forcing more borrowers out of their homes as the program struggles to make an impact, according to Treasury data released Monday.
The program, known as Making Home Affordable, pays lenders to lower the mortgage payments of distressed borrowers, but it has struggled to have a significant effect on the country's foreclosure crisis. Now it is increasingly losing borrowers who didn't submit enough documentation to prove they qualified for the help or who fell behind on their new lower mortgage payments.
The number of borrowers who were dropped reached more than 280,000 in April, according to the Treasury data. That compares with about 157,000 borrowers who had lost their mortgage aid in March and means that more than one of every five borrowers who have entered the program eventually lost their aid.
Housing advocates have complained that lenders often don't provide a reason for cutting a borrower from the program and there is no clear process for appealing the decision. The cancellations could reflect a mistake on the part of the lender or that they lost the homeowner's documents, said Julia Gordon, a senior policy counsel at the Center for Responsible Lending. "There is no way to know what lies behind those numbers. . . . It could be that the person had reduced work hours" after entering the program, she said. "I think there are a lot of people at risk of foreclosure whose homes could still be saved who are not being helped fast enough."
Overall, more than 1 million borrowers have seen their mortgage payments lowered under the program, but the majority, 630,000, still have to prove they qualify for the program and are in limbo.
"These decisions are being made faster," Herbert Allison, an assistant Treasury secretary, said in a conference call with reporters. But "homeowners are waiting. We want them to get answers as rapidly as possible."
Still, the Treasury data showed that lenders did a better job in April of moving homeowners from the initial trial phase of the program into a permanent loan modification. The number of permanent loan modifications, which typically lower a borrower's payment by more than $500 a month, rose 13 percent to nearly 300,000.
The pace of borrowers moving into a permanent loan modification should continue to increase, Treasury officials said. The government's focus is on "improving the homeowner experience and holding servicers accountable for their performance," said Phyllis Caldwell, chief of Treasury's Homeownership Preservation Office.
In March, the Obama administration announced several changes to the federal program, which it hopes will help up to 4 million borrowers over the next few years. For the first time, for example, lenders can receive incentive payments for cutting the mortgage balance of homeowners who owe more than their home is worth, known as being underwater.
"It is going to be a tough one to make happen, but it could help a number of people caught in a bind of 'Do I continue to stay in a home that isn't worth what I paid?' " said Kimberly T. Henderson, director of housing and community development at the Greater Washington Urban League.
Most of the changes will not take effect until the fall, and housing advocates have questioned whether it goes far enough or is merely delaying an inevitable surge in foreclosures.