Foreclosure relief plan still coming up short

John W. Schoen Senior producer • Profile • E-mail

The government’s foreclosure relief program just isn’t working.

That was the assessment Thursday of two reports from government watchdogs and a panel of witnesses at a congressional hearing trying to find out why the Obama administration is falling far short of its goal of preventing millions of Americans from losing their homes.

Treasury officials at the hearing acknowledged problems in the year-old mortgage-modification program and announced changes designed to address issues that have limited its effectiveness. Only 170,000 homeowners have completed the process to get their monthly payments reduced out of 1.1 million who began it over the past year.

A failure of the government's latest effort to stem the tide of foreclosures would threaten  more than the roughly 8 million homeowners at risk of losing their homes in the next two years, according to John Taylor, president of the National Community Reinvestment Coalition.

"If we have another 8 million homes to go into foreclosure it will have a devastating effect on our economy, and job losses will continue to rise," Taylor told the House Committee of Government Oversight and Reform.

Three years after the housing bubble burst, the number of homeowners falling behind on their mortgages continues to rise. A separate report Thursday from U.S. banking regulators showed that the number of seriously delinquent mortgages jumped in the fourth quarter, led by a sharp increase among the most creditworthy borrowers. Some 13.6 percent of all homeowners with mortgages — more than one in seven — are behind in their payments, according to the Office of the Comptroller of the Currency. It was the seventh consecutive quarterly rise.

A Treasury official at Thursday's hearing acknowledged that the government's Home Affordable Modification Program had encountered a series of unforeseen roadblocks. But he also announced changes designed to speed the modification of loans to more affordable terms.

“We've been learning as we went along,” said Assistant Treasury Secretary Herbert Allison Jr. “We want to continue to improve this program."

The HAMP program is designed to head off foreclosures by lowering borrowers' monthly payments through a series of voluntary concessions from lenders. Guidelines call for cutting mortgage rates to as little as 2 percent for five years, with the difference subsidized by the government, and extending the loan’s term to 40 years. More than 100 lenders have agreed to follow the guidelines, but the decision to modify an individual loan is entirely up to the lender or investors holding the mortgage.

The program has been riddled with problems from the beginning, drawing fire from homeowners, housing counselors, consumer advocates and attorneys working with borrowers. Many report long wait times getting through to lenders, multiple requests for paperwork, lost documents and little or no explanation when applications are denied.

The Treasury also said it will make changes in response to one of the most frustrating complaints.  In many cases, lenders are moving to foreclose on a property — even after homeowners get approved for loan modification.

"The new guidelines will make clear that if the homeowner enters into a fully verified modification plan, all pending foreclosure actions must be stopped," Allison told the congressional panel.

But such changes have been a major source of "confusion and delay," according to a report from Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, who testified Thursday. He criticized the Treasury for not setting clear targets for how many homeowners are expected to get help under the $75 billion program.

"We believe it is unacceptable that one year into the program Treasury has yet to identify its goals," he said.

The program also has yet to tackle the issue of millions of homeowners who have second mortgages that must also be modified to make their first mortgage affordable. A year into the program, those guidelines still have not been established, according to Gene Dodaro, acting comptroller general of the Government Accountability Office, which issued a report Thursday critical of HAMP.

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