Dropouts Rise In Gov’t Loan Modification Program
The Treasury Department’s latest report reads like a dashboard of the problems in the Obama administration’s $75 billion program. While officials summarize it as a helping hand that can help the housing market turn around, critics see that as something that merely delays an inevitable surge of foreclosures. The critics seem to be right, as there is growing evidence that the number of homeowners dropping out of main mortgage assistance program is almost equal to the number who have received permanent relief. And the drop outs are on the rise. More than 299,000 homeowners had received permanent loan modifications as of last month, Treasury said. That’s about 25 percent of the 1.2 million who started the program since its March 2009 launch. They are paying, on average, $516 less each month. However, the number of people who started the process but failed to get their mortgages permanently modified rose dramatically in April.
To complete the program, borrowers must make at least three payments on time. About 277,000 homeowners, or 23 percent of those enrolled, have dropped out during this trial phase. That’s up from about 155,000 a month earlier, or a 79 percent increase. The many reasons for the failure include, borrowers’ inability to complete the process and tough bureaucracy. Treasury officials acknowledge that long delays have been a problem. “Homeowners are waiting. We want them to get answers as rapidly as possible,” said Herbert Allison, an assistant Treasury secretary. Treasury officials have now directed lenders to shift to a new system. Starting with loan modifications that go into effect June 1, they are required to collect two recent pay stubs at the start of the process. Many borrowers who don’t get help will end up losing their homes. That can happen through foreclosure or short sales. Mortgage companies will now have to set their minimum bid before the house is listed for sale.
If the offer is above that, the lender must accept it.
But, generally, lenders calculate the money only after they have an offer on hand, which can lead to more delays. The new program is expected to boost short sales this year, but 80 percent of distressed sales this year are still likely to be foreclosures, estimates Celia Chen, senior director of Moody’s Economy.com.
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