As year five of the housing crisis begins, the Obama administration?s programs to help struggling homeowners haven?t solved the foreclosure problem, but they are keeping a growing number of people in their homes.
But the report card from critics of the programs is mixed at best.
More than 880,000 homeowners have been able to modify their mortgage payment under the two big foreclosure prevention programs the U.S. Treasury Department administers with funds from the Troubled Asset Relief Program. The Housing and Urban Development Department administers similar programs for the Federal Housing Administration and the government-backed Fannie Mae and Freddie Mac administer programs for the loans they own or guarantee.
Still, only $2.7 billion of the $29.9 billion allocated to the Treasury Department?s Making Home Affordable program and Hardest Hit Fund has been spent. Another $8.2 billion is set aside for homeowners currently in the three-year trial modifications, a Treasury spokesperson said.
The numerous programs typically have incentives for lenders and servicers to offer relief for homeowners struggling with their mortgages. Some help underwater homeowners become current on their loans; others lower interest rates to make payments more manageable; still others just help homeowners manage a foreclosure or short sale.
Banks have defended their work, and point to a large number of loan modifications done outside the federal programs.
Wells Fargo said in a statement that it believes the programs ?have been helpful. While the number of borrowers helped has not met the government?s initial projections, the programs have facilitated the industry?s ability to deliver more streamlined solutions than ever before.?
In a statement, Chase said it has offered 1.2 million modifications to struggling homeowners. It said the ?most effective way? to keep borrowers in their homes is to lower their mortgage payments by reducing the interest rate.
Few modifications write down the principal to the value of the house today, leaving homeowners with potentially big balloon payments if they sell the house later.
?There seems to be some assumption that home prices are going to bounce back and that?s going to fix the underwater problem,? said Chris Thornberg of Beacon Economics. ?That?s not going to happen.?
?If you are making $40,000 a year and you?re $100,000 underwater on the house, your best bet is to get the hell out of that house as soon as possible. Your credit score is going to heal faster than your equity.?
Writing down principal ?is a solution that deserves consideration,? said Sean O?Toole of Foreclosure Radar, a Discovery Bay foreclosure information service, ?but it?s also a slippery slope. Once you offer principal balance reductions, all of those folks who are underwater and making their payments are going to want one.?
Complex requirements are also a hurdle many borrowers are unable to leap.
Borrowers may be told to miss three months of payments to begin a modification, for instance, but that can trigger a foreclosure action by the lender.
For example, Claudia Serna of San Jose, Calif., laid off from her East Side Union School District job, thought her bank was working on a modification plan last year when ?someone knocked on my door. My home had been sold.? Since then she got her old job back at lower pay, and is living with her sister.
Starting in September, lenders were required to have a single point of contact who will be available to the borrower if the loan is going to be foreclosed. Serna?s situation happened before then.
Some borrowers, in desperate attempts to keep a home, continue making payments in the face of an inevitable foreclosure, throwing money away on a lost cause.
?The Home Affordable Modification Program: About 880,000 active permanent modifications.
?Second Lien Modification: About 41,000 active second lien modifications through October.
?Home Affordable Foreclosure Alternatives: About 20,000 people helped through October.
?Principal Reduction Alternative: About 53,000 trial modifications started as of October.
?Home Affordable Refinance Program: A restrictive requirement on how far underwater a home could be was relaxed in November.
?Mortgage Forgiveness Debt Relief Act of 2007: Lasts through the end of 2012.
?Unemployment Program: About 16,000 loan payment forbearance plans started as of September.