The government finally seems to be making progress in its efforts to stem
the foreclosure crisis. Housing and Urban Development officials say
lenders extended loan-modification offers to 40,000 borrowers who were
struggling to pay their mortgage in the second week of June. That is nearly
triple the weekly average of about 15,000 workouts that loan servicers had
extended in the prior 10 weeks since the government’s latest foreclosure-prevention plan was announced.
“Foreclosures were becoming a self-reinforcing problem for the housing
market,” said HUD head Shawn Donovan, speaking to journalists last week
at the National Association of Real Estate Editors’ annual conference.
“Already we are seeing signs that the housing market is better off than
when President Obama took office.”
Of all the problems related to the financial crisis, the rising number of home
foreclosures has been one of the most persistent and toughest to solve. One
plan, Hope for Homeowners, which was launched by the government with much
fanfare last fall, has helped just 51 borrowers get lower-cost loans.
Another program, the Hope Now Alliance, which is a voluntary effort put
forth by lenders, has reached more than 4 million borrowers. But it is estimated
that less than a quarter of those borrowers assisted in the lenders’ program
ended up with more affordable loans. In fact, many of the borrowers “helped”
by the Hope Now Alliance have actually seen their monthly fees go up, as
lenders spread unpaid balances over future months, rather than forgiving
part of what was owed.
In March, the government launched the Making Home Affordable program. The
plan’s biggest difference is that the government agrees to pay servicers a
few thousand dollars per loan they modify, depending on when they make the
offer and how successful it is. The longer the homeowner stays current on
the loans, the more a loan servicer would receive. The government also
pledged $10 billion to offset the losses that banks and mortgage investors
might suffer because of the modifications.
At first the plan, like the ones before it, seemed to get off to a slow start.
But in the past few weeks, the government’s efforts seem to be attracting
more and more lenders who are willing to lower monthly payments and make
other modifications that will help troubled borrowers keep their houses.
Still, some consumer advocates say the government’s latest effort does not
go far enough. Even if the 40,000 modifications-a-week pace is sustainable,
that means the government’s plan will reach just over 2 million
troubled borrowers in the next year. That’s far fewer than the estimated 6
million American homeowners who are at risk of facing foreclosure in the
next year or so. And those estimates of likely foreclosures have been rising
recently.
“It’s too early to tell how many people the program will help,” says Ken
Wade, head of NeighborWorks, a national foreclosure-mitigation
counseling service. “Servicers are still not responding to troubled
borrowers as fast as they should.”
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