The federal government is taking another stab at helping struggling homeowners keep their homes by expanding its failed loan modification program. Many in the housing community said they think it's too little too late.
Under new guidelines for the Home Affordable Modification Program, more borrowers will be eligible. The government will also encourage mortgage companies to forgive chunks of the debt borrowers owe, according to a statement Friday by the Treasury Department and the Department of Housing and Urban Development. Yet the program remains voluntary both for banks and for mortgage finance giants Fannie Mae and Freddie Mac. Without compelling these institutions to act, the program is likely to remain impotent, most observers said.
"I view this as nothing more than election-year grandstanding, an attempt by the [Obama] administration to look like it's doing something to help homeowners," said Melissa Huelsman, a private attorney who has represented homeowners for more than a decade.
Under the expanded guidelines, banks and mortgage companies will receive 18 cents to 63 cents on the dollar to forgive portions of borrowers' mortgage debt -- a three-fold increase from the 6 cents to 21 cents they were offered under previous guidelines.
"It's not enough to increase access. We also have to increase impact," said HUD secretary Shaun Donovan. "We have to rebuild equity. Lowering payments isn't enough."
"I'm not that excited about incentives," said Ira Rheingold, executive director of the National Association of Consumer Advocates. "The fact is, the banks have done a terrible job complying with the program. Today, we're seeing the same problems as three years ago -- they lose people's documents, they wrongly push people into foreclosure. And the Treasury Department hasn't held them accountable for their failures. So even if you expand the incentives, until you make the banks comply, we're going to see these problems."
In spring 2009, President Barack Obama introduced the HAMP program to help desperate homeowners weather a disintegrating housing market. In announcing the program, Obama promised to help 3 million to 4 million borrowers by restructuring their mortgages to lower monthly payments. More than three years later, fewer than 1 million homeowners have had their loans permanently changed, or modified, under the program.
The government has allocated nearly $30 billion for homeowner assistance programs, but only $2.3 billion has been spent. An additional $10 billion has been committed, but not yet paid, said Tim Massad, a Treasury Department assistant secretary.
Consumer advocates have consistently complained that government-owned mortgage giants Fannie Mae and Freddie Mac have not been required to forgive borrowers' mortgage debt. The changes introduced today do nothing to address that concern.
"I'm glad that hopefully more people have an opportunity to get help. However, it's not nearly enough, and it won't be nearly enough, until Fannie and Freddie participate in a robust program to reduce people's debt," said Rheingold.
According to Friday's statement, the Treasury Department has told Fannie and Freddie it will pay them the same incentives as banks, should the two mortgage companies choose to participate. "We need banks and other institutions to step up and help with principal reductions," said Donovan in a conference call with reporters.
In addition to increases in incentives, the government has extended the program, which had been set to expire at the end of 2012, through the end of 2013.
Eligibility criteria have also been relaxed in an effort to help more people. Previously, the program was limited to borrowers with a monthly mortgage payment that took at least 31 percent of their total monthly income. Under the new guidelines, borrowers with more affordable payments can still qualify, depending on circumstances. In expanding this criteria, the government is trying to help borrowers whose mortgage payment is reasonable, but who are struggling because of other expenses that may include medical bills and credit card debt.
UPDATE 10 p.m. --
Derrick Plummer, Department of Housing and Urban Development spokesman, said in an email:
Because of the efforts of this Administration and programs like HAMP, foreclosures are down 45% since early 2009...The reality is today's announcement expands upon a program that has helped nearly 1 million Americans receive a new lease on their dream of homeownership. As the President said Tuesday he is committed to an America built to last and ensuring that Americans who are struggling to make ends meet have lower payments, those out of work have more time (up to 12 months) to catch up on missed payments, and helping those who are struggling with secondary debt, like second liens, medical bills and credit cards by lifting the debt to income ratio, all the while helping to keep more Americans in their homes is an important step toward doing that.
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