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.
FHASecure
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:
So how is the program doing?
The July 2010 results look like this:
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.
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For more by insights and ideas by Peter G. Miller, please visit his consumer real estate information site, OurBroker.com.
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You say that 245,651 were offered trial modifications but "refused" them. Did the homeowner refuse, or did the mortgage servicer lose their application paperwork?
You say that 520,814 "could not complete the three-month trial period". Could the homeowner really not complete, or did the mortgage servicer deny them for a permanent modification after a trial period because (a) the servicer says the "investor" won't modify (b) some other bogus denial reason, (c) the servicer lost their trial verification paperwork or (d) the servicer never sent out of the trial paperwork or notified the borrower of the modified payment amount expected of them. All of these are routine and all of them end up reported as a trial period "cancellation". At any rate, the number of failures is now over 600,000.
See ProPublica's reporting for a much more accurate picture of HAMP outcomes: http://www.propublica.org/ion/loan-modifications
And also, 245,651 did not enter the program. That's another "why" that can be debated.
And yes there are a huge number of failures. But the grim reality is virtually every borrower in the program would be foreclosed without it. Look at the figures from Chase, as below in another comment, and look at what had been done previously.
There's not going to be a perfect solution. It's easy to be critical but please tell us what you would do that's better. And when you provide your perfect solution tell us how you will overcome opposition from the banks and many members of Congress and tell us how long it will take to get your program up and running -- remember there are more than 300,000 foreclosure filings per month.
In the winter of early 2009, consensus was building in support of this measure. Republicans opposed it, of course, and the reviled Mortgage Bankers Association and related lobbies poured millions of dollars to oppose it. Yet, the measure had political viability and momentum. It passed the House.
Puzzlingly, the Administration became utterly silent on the issue of bankruptcy reform. Instead, in March 2009, we saw HAMP rolled out. Bankruptcy reform died in the Senate with little fanfare. It had all the appearance of an Obama-style "compromise" being worked out: join in this clever program designed to harness the power of the market, and we'll drop the issue of bankruptcy reform.
Bad move. The infrastructure was already there (Bankruptcy Courts, a competent bankruptcy bar). The political momentum was there (amid a recession caused by toxic mortgage assets, you are afraid of the mortgage bankers?). It would not be voluntary. It would not cost billions of taxpayer dollars.
Yes, Obama's performance on this issue has been light years ahead of anything Bush did or would have done. But that is a remarkably low bar to set for wise stewardship over our economy.
http://financialservices.house.gov/media/pdf/110503cc.pdf
Why weren't distressed borrowers helped before? They didn't know what to look for.
http://borrowerclaims.blogspot.com/2009_08_02_archive.html
They only better alternative was immediate investigations on a case by case basis.
Blaming the Obama program for failing? Yes. By waiting until the end of 2010 for his task force to complete and investigation.
http://www.nytimes.com/2000/04/02/business/personal-business-zero-down-and-maybe-something-to-gain.html?sec=&spon=&pagewanted=1
Who will laugh when America goes bankrupt? 3 years ago nobody would believe it, but now people speak about this openly. It's no longer a safe economy.
Brian
http://www.mortgage-loans.eu/
This is one way to address the issue you raise and it would offer a lot of benefits in terms of lower monthly costs, more consumer spending, etc.
It is especially unfair to students and younger individuals who are emerging into an environment that was 100% out of their control.
out of our control. But that doesn't excuse us from having to do something about it.
Like any other taxpayer-funded measure, this will involve spreading the cost throughout society when surely the blame rests with the few. Well, you can cry about that, or you can learn to tolerate a little cosmic injustice so that we don't all live in Hoovervilles with a completely destroyed economy in five years. Bottom line, we can't throw all our neighbors out on the street and board up their houses then expect to have a viable economy once we crawl out of this wreckage. I may not think HAMP is the greatest way to approach the problem, but it sure is better than what you're suggesting, namely, to do nothing.
See:
http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo5.htm
No, this progressive can't defend his "progressive" president on this issue. With more than one fourth of the U. S. population liiving in populous states like Fl and CA with one-third to one half of mortgages under water, this was a first class national emergency with not only fiscal but huge human costs attached. Many knowledgable observers said so at the time.
The fact remain that Pres. Obama/s top economic advisers refused to listen and did not push for a significant moratorium on foreclosures. They refused to make the mortgage crisis a number one strategic imperative (as FDR had done).
It was a stupd decision politically too. A great deal of the "populist" Tea Party anger is due, in my Florida based opinion, to the angst that millions of homeowners feel when 40-50% on average underwater.
If your thought is that the Obama administration underestimated the foreclosure issue I agree.
The point I'm making is a little different:
First, it is not only the Obama Administration that screwed up.
Second, we want to assure that this never happens again and that means not going back to a deregulated mortgage marketplace which is essentially what we had and largely still have.
Third, I don't see this as an issue of "progressives" versus anyone else. Instead, it's the issue that your house and mine would be worth more if toxic loans had not been allowed in the first place.
Please understand that I have had this view for a long time. In fact, I gave a speech in 2006 -- the height of the real estate boom -- telling the nation's real estate regulators that we would soon have massive foreclosure levels. See:
Toxic Loans: The Coming Storm.
Lastly -- again for purposes of context -- consider that Chase has just come with an announcement that it has made 913,309 modifications offers and of which 214,529 are now permanent. That's a 23 percent success rate versus 31 percent for Making Home Affordable. See:
http://investor.shareholder.com/jpmorganchase/releasedetail.cfm?ReleaseID=502285
http://www.ourbroker.com/toxic-loans/toxic-loans-the-coming-storm/
http://loanmodificationhomeownerresources.org/2010/08/18/professor-elizabeth-warren-grilled-treasurey-secretary-geithner-on-failure-of-hamp/
Your words: "There have been 389,198 permanent modifications to this point. These are people who otherwise would have lost their homes."
This is over *the last fifteenth months* at a cost of *50 billion dollars* to the taxpayer. Research groups (video) estimated that 2/3 of these modifications will fail. Leaving optimistically 150,000 permanent modifications over the last 15 months.
Compare that number to *186,000* foreclosures PER MONTH.
Saying that the program is a success is ludicrous. I understand progressives wanting to defend their so called progressive president, but frankly it's not going to fly election time.
You can be certain that all those people who sure could have used *some* help to stay in their home are not going to be beating a path to vote for Obama like they did in 2008, as well as many of their neighbors who helped them load up the u-hauls. At the rate foreclosures are happening, a large chunk of his electorate is simply evaporating.
RealtyTrac. Not all of these homes will be foreclosed but it certainly does little to push up local home values. See:
http://www.realtytrac.com/content/press-releases/foreclosure-activity-increases-4-percent-in-july-5946
However, what you're looking at reflects in some measure past lending activity. For instance, option ARMs with a five-year re-cast were originated in 2005. According to Fitch Ratings the typical payment increase will be 63 percent when the start period ends. See:
http://www.businesswire.com/news/home/20090908006052/en
Lastly, of course it will cost the government money to stop foreclosures. It would have cost a lot less to regulate lenders as was been done in the past. For a few bottles of ink the Federal Reserve, under Section 129 of the Home Ownership and Equity Protection Act of 1994 (HOEPA), has the authority to prohibit "“unfair and deceptive acts or practices." It could have used that power to ban option ARMs and interest-only loans. It didn't.
http://caselaw.lp.findlaw.com/scripts/ts_search.pl?title=15&sec=1639
Even though I worked very hard for the President's election, my totally positive feelings began to wither when Tim Geithner, Larry Summers and other Wall Street insiders were appointed to key positions in the Administration. These folks have from the beginning either totally underestimated the effects on the real estate meltdown or have purposely taken the side of the big banks at the expense of average Americans.
I remember from math classes--oh so many decades ago--that 100 times zero is still ZERO.
That said, as someone who has followed real estate and mortgages for many years, he has done vastly better than the last administration -- and it was the last administration that created this mess.
An important point here is that with help virtually every homeowner enrolled in Making Home Affordable is headed to the foreclosure auctions. That any have been saved is something of an accomplishment.