Just about every posting regarding the Obama mortgage modification program says it's a dud. Those on the left say not enough has been done, those on the right say too many homeowners are washing out of the program. What's too often left out is any sense of context.
The reality is that the Obama loan modification program has saved roughly 100 times as many homes from foreclosure as the programs started under President Bush. That doesn't mean the Obama plan is perfect or wonderful, but it's surely better than many commentators suggest.
For it's part the Bush Administration had two important foreclosure programs.
Hope For Homeowners
First, there was the Hope for Homeowners plan, a program which set aside $300 billion to refinance toxic loans made no later than January 1, 2008.
No doubt $300 billion is a lot of money but just how many loans were refinanced under H4H? Let's see, there were 0 in fiscal 2008, 23 in fiscal 2009 and 48 so far in fiscal 2010. That's a total of 71 loans. Over three years. A little more than one per state.
Why did Hope for Homeowners fail? Lender participation was voluntary, new loans were limited to 90 percent of appraised value and appraised values had gone down so lenders were being asked to take a loss for every loan refinanced under the program.
Second, there was the FHASecure program.
"In the coming days," said President Bush in 2007, "the FHA will launch a new program called FHA-Secure. This program will allow American homeowners who have got good credit history but cannot afford their current payments to refinance into FHA-insured mortgages. This means that many families who are struggling now will be able to refinance their loans, meet their monthly payments and keep their homes. In other words, we're going to start reaching out and making sure people know that this option is available to them so they can stay in their homes."
Sounds great. So what happened?
To follow the program you have to look at the number of delinquent conventional loans refinanced with FHA-insured mortgages. There were no such loans in fiscal 2007, 3,794 such loans in fiscal 2008 and 316 mortgages in fiscal 2009. That's a total of 4,110.
But according to then-HUD Secretary Alphonso Jackson the story was different.
"FHASecure," he said, "has helped more than 100,000 families stay in their homes. Homeowners are cutting their monthly mortgage payments by an average of $400 a month compared to their exotic subprime loans. They no longer have anxiety about finding foreclosure notices in their mailboxes, thanks to the safe mortgage alternative that FHASecure offers."
So did the program help 4,100 delinquent conventional borrowers or more than 100,000?
The original purpose of the FHASecure program was to help delinquent conventional borrowers get FHA financing. Jackson himself had testified before Congress in 2007 that the FHASecure program was for "borrowers who are otherwise creditworthy, but have recently become delinquent on their mortgages as their teaser rates reset."
But since the program wasn't working the solution was to redefine the program.
HUD did this by simply changing its FHASecure Frequently Asked Questions page to say "these FAQs have been modified to reflect that the term FHASecure applies to all conventional to FHA refinance transactions. The previous edition of FAQs indicated that only those borrowers who were delinquent due to reset of their non-FHA ARMs were eligible for FHASecure, causing confusion."
And just like that the FHASecure program was a "success" -- unless you were one of the millions of borrowers with a toxic loan that needed to be refinanced.
Making Home Affordable
In March 2009, a few weeks after entering office, the Obama Administration started the Making Home Affordable program. In basic terms, the program today has four elements:
- The Home Affordable Refinancing is for those making payments who want to refinance but lack equity.
- The Home Affordable Modification is for borrowers who face foreclosure as a result of higher mortgage payments, reduced income or hardship (think medical bills).
- The Second Lien Modification Program (2MP) is for borrowers with second liens of more than $5,000. May result in lower interest rate or an extended loan term.
- The Home Affordable Foreclosure Alternatives Program (HAFA) is for borrowers who have been unable to get help under Making Home Affordable. It provides as much as $3,000 to borrowers who participate in a short sale or deed-in-lieu of foreclosure.
So how is the program doing?
The July 2010 results look like this:
- The government has identified 1,623,584 delinquent borrowers who qualify for program help.
- Some 1,528,563 have been asked to participate in the program. Amazingly, 245,651 refused, meaning that 1,282,912 borrowers started loan modification trials.
- Of those who started loan modifications, 520,814 could not complete the three-month trial period and will likely lose their homes. In addition, 8,823 who passed the trial modification period and obtained a "permanent" loan modification actually re-defaulted. In total, 529,637 borrowers have washed out of the program to date.
- Roughly 364,077 borrowers are still in trials.
- There have been 389,198 permanent modifications to this point. These are people who otherwise would have lost their homes.
The bottom line: The Obama program has so far saved 389,000 borrowers from foreclosure, a number which will increase in the coming months and a number which is now nearly 100 times greater than the foreclosure prevention results under the Bush Administration.
Is it good that more than nearly 530,000 borrowers have so far dropped out of the program? Of course not, it's a terrible thing to face foreclosure.
But ask yourself: When did the foreclosure mess begin? Why did past bouts of unemployment not produce a flood of foreclosures? Why did regulators let lenders offer toxic loans? Why weren't distressed borrowers helped before, when the foreclosure crisis first began to unfold? How much help and enthusiasm have lenders given the Administration's modification efforts? What better alternative has anyone been able to offer the 530,000 borrowers who did not succeed with Making Home Affordable?
Blaming the Obama program for failing to save more distressed homeowners is like a guy in a life raft who drills a hole in the bottom and then complains that everyone else isn't bailing fast enough. It just isn't right.