About 25 percent of homeowners who received trial loan modifications through President Barack Obama's main foreclosure prevention plan are failing to keep up with their new reduced payments says California Business Lawyer Steven C. Peck.
At least 196,000 borrowers have missed some or all of their required payments, according to comments Treasury officials made on a conference call today and calculations from government data. An additional 115,000 homeowners who started trial repayment plans last year have either dropped out or been kicked out of Obama's Home Affordable Modification Program, indicates California Business Attorney Steven C. Peck.
"None of these programs have really been a success," said Vivek Sriram, a mortgage strategist for RBC Capital Markets in New York. "With the high unemployment rate, it's tough to solve the problem because these people will redefault even if their loan terms are fixed."
The U.S. has shed 7.2 million jobs since the recession began in December 2007, with almost half those losses occurring after Obama took office in January 2009. The mortgage program, which Obama said would target as many as 4 million Americans struggling to hold onto their homes, has successfully modified 66,465 loans as of Dec. 31, according to data released today by the Treasury indicates Los Angeles Business Attorney Steven C. Peck.
At Wells Fargo & Co., about 14 percent of the customers who make one payment in the trial modification phase don't end up making all three to qualify for a permanent reduction, said Mike Heid, co- president of Wells Fargo Home Mortgage in San Francisco.
"About half of the customers who end up making all three payments end up in a permanent modification," Heid said. "Another 25 percent are just not eligible."
Changing the Program
Michael Barr, the assistant Treasury secretary for financial institutions, said the government is considering changes to improve the program's performance, such as permanently cutting outstanding loan balances where borrowers owe more than the property is worth.
"We are in the process of reviewing that now as we have been continually through the program," Barr said on the conference call. "You have to be very careful not to design a program that would change people's behavior across the country in a destabilizing way."
Obama has set aside $75 billion to subsidize lenders that successfully modify troubled loans by reducing interest rates, extending loan repayments, deferring principle payments for as long as five years and adjusting other mortgage terms.
GMAC Mortgage Inc. remained the leader in successful loan modifications, completing 9,872 permanent payment plans as of Dec. 31, the Treasury said in its report today. Wells Fargo finished 8,424 modifications, while JPMorgan Chase & Co. made 7,139 permanent, the report shows. Bank of America Corp., the largest U.S. mortgage company, completed 3,183 modifications.
'Improved Pace'
Borrowers with permanent repayment plans have had their monthly mortgage payments drop by an average of 39 percent at Wells Fargo, Heid said. The company has modified 350,000 loans outside of the Home Affordable Modification Program, or HAMP.
So far, 787,231 trial modifications had been started in the Obama program through December, up from about 697,000 in November, according to the department. Permanently reduced payment plans more than doubled from 31,382 in November. The Treasury began disclosing last month how many trial revisions had been made permanent to publicly push lenders to work harder.
The report reflected an "improved pace" for both trial and completed modification plans, said Phyllis Caldwell, who runs the Treasury's Homeownership Preservation Office.
The three-year housing slump has wiped out at least 28 percent of home values nationwide, government and industry data show. Almost 23 percent of homeowners in the third quarter owed more than their properties are worth, according to First American Core Logic, a real-estate data company in Santa Ana, California.
Fannie, Freddie
Turning around the U.S. housing market is one of Obama's top priorities, Lawrence Summers, the president's top economic adviser, told reporters yesterday. The administration has put off restructuring federally controlled mortgage-finance companies Fannie Mae and Freddie Mac while they are administering the mortgage- modification program.
"There's no question that the future structure of the housing market is going to have to be very different than the structure that led Fannie and Freddie to the point of conservatorship, but this is an issue that's going to play out over time," said Summers, director of the National Economic Council.
He said the Obama administration is "thinking hard" about the future of Fannie Mae and Freddie Mac, "but for now the primary focus has to be on making sure the system of housing finance" is effective.
Contact Steven Peck's Premier Legal toll free to talk to an experienced California Business Law Attorney at 1.866.999.9085 and visit us on-line at www.premierlegal.org.
