Nearly 50 % leave Obama mortgage-aid program

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By Martin Crutsinger, AP Economics Writer

Fri Aug 20, 5:33pm ET

WASHINGTON - Nearly half of the 1.3 million homeowners who enrolld in the Obama administration's falgship mortgage -relief program have fallen out.

The program is intended to help those at risk of foreclosure by lowering their monthly mortgage payments.  Friday's report from the Treasury Department suggests the $75 billion government effort is failing to slow the tide of foreclosures in the United States, economists say.

More than 2.3 million homes have fallen into foreclosure since the recession began in Decenber 2007. according to foreclosure listing services Realty Trac Inc.  Economists experct the number of foreclosures to grow well into next year.

"The government program as cuirrently structured is petering out.  It is taking in fewer homeowners, more are dropping out and fewer people are ending up in permanent modifications," said Mark Zandi, chief economist at Moody's Analytics.

Besides forcing people from the homes, foreclosures and distressed home sales have pushed down on home values and crippled the broader housing industry.  They have made it difficult for homebuilders to compete with the depressed prices and discouraged potential sellers from putting their homes on the market.

Approximately 630,000 people who had tried to get their monthly mortgage payments lowered through the government program have been cut loose through July, according to the Treasury report.  That's about 48 percent of those who had enrolled since March 2009.  And it is up from more than 40 percent through June.

Another 421,804 or roughly 32 percent of those who started the program, have received permanent loan modifications and are makinjg their payments on time.

Realty Trac reported that the number of U.S. homes lost to foreclosure surged in July to 92,858 properties, up 9 percent from June.  The pace of repossessions has been increasing and the nation is now on tract to having more than 1 million homes lost to foreclosureby the end of the year.  That would eclipse the more than 900,000 homes repossessed in 2009, the firm says. Lender have historically taken over about 100,000 homes a year, according to realty Trac.

Zandi said the government effort will likely end up helping only about 500,000 homeowners lower their monmthly payments on a perminent basis.  That's a small percentage of the number of people who have already lost their homes to foreclosure or distressed sales like short sales - when lenders let homeowners sell for less than they owe on their mortgages.

Zandi predicts another 1.5 million foreclosures or short sales in 2011.

"We still have a lot more foreclosures to come and further home price declines," Zandi said.  He said home prices, which have already fallen 30 percent since the peak of the housing boom, would drop by another 5 percent by next spring.

Many borrowers have complained that the government program is a bureaucratic nightmare.  They say banks ofter lose thteir documents and then claim borrowers did not send back the necessary paperwork.

The banking industry said borrowers weren't sending back their paperwork.  They also have accused the Obama administration of initially pressuring them to sigh up borrowers without insisting first on proof of their income.  When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out.

Obama officials dispute that they pressued banks. They have defended the program, saying lenders are making  more significant cuts to borrowers' monthly payments than before the program was launched.  And some of the largest mortgage companies in the program have offered alternative program to those who fell out.

Homeowners who qualify can recieve an interest rate as low as 2 percent for five years and a longer repayment period.  Those who have successfully navigagted the program to reach permainent modifications have seen their monthly payments cut on average by $500.00.

Homeowners first receive temporary modifications and those are supposed to become permanent after borrowers make three payments on time and complete all the required paperwork.  That includes proof of income and a letter explaining the reason for their troubles.  But in practice, the process had taken far longer.

The more than 100 participating mortgae companies get taxpayer incentives to reduce payments.  As of mid-June only $490 million had been spent out of a potential $75 billion the governmenthas made available to help stem the wave of foreclosures.  



This is taken from the YAHOO ! NEWS



Comments (2)

Damon Gettier
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA
Broker/Owner ABRM, GRI, CDPE

I think we all knew this was going to happen.....well, all but Obama.

Aug 21, 2010 03:34 PM
Ted J. Macy
Top Agents Atlanta Metro - Milton, GA

This thing is a real mess, I am wondering how the taxpayers are getting along with that "Hope and Change" stuff? Many of the folks I have visited in the HAMP program, say they sent in their paperwork ove 3 times before it was acknowledged that it was received. Looks to me like "another 'successful' big government program".

Aug 21, 2010 04:32 PM