Administration: Mortgage program helping 20 percent of eligible homeowners

[Robb]

Source: Washington Post

The number of homeowners getting help under the government's massive foreclosure program is growing, according to government data released Tuesday, but it is still unclear how many of these borrowers may still lose their home.

Under the effort, known as Making Home Affordable, lenders are paid to lower borrower's mortgage payments. The program has struggled since being launched in March with lenders applying it unevenly and slowly throughout the industry.

Through October, 650,994 delinquent borrowers have received help under the program, or 20 percent of those potentially eligible, according to Treasury data. That is up from 487,081 through September. Most of them are in states hardest hit by the housing crisis. For example, about 134,609 of those that have seen their loans modified under the program -- typically through an interest rate reduction -- are in California and another 82,614 are in Florida.

(snip)

And even as the administration says the program is building momentum, lingering questions remain about the efficacy of the $75 billion effort. Economists widely expect nearly 2 million borrowers to lose their home to foreclosure this year. Some have questioned how many of the borrowers who receive a modified loan under the program will default later. Also, it is unclear how well suited the plan is in addressing what many now consider the biggest driver of foreclosures: unemployment. With little or no income, borrowers have fewer options to save their home, housing advocates note.

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2009/11/10/AR2009111006747.html?hpid=moreheadlines

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$75 billion / 650,994 = $115,208 spent per modification.

[Godhumor]

1. Erm, $75 billion has been budgeted/estimated for the effort but not actually spent

It is an unfortunate tendency with media outlets to forget that part when talking about the price of various government programs.

[notadmblnd]

2. banks are choosing not to help people keep thier homes

I don't understand it myself. They won't come down on their interest rates or principle and allow the owner to make lower payments. However, they will foreclose and let the property decay then resell at 1/3 of what the original owner owes. I guess the name of the game is punish the little guy.

[WriteDown]

3. HMP has strict requirements for eligibility...

It has little to do with the the banks desires.

[notadmblnd]

4. yeah, sure. Okay, what you say.

[WriteDown]

6. DTI must be brought downt to 38% and then the gov't

basically pays to bring DTI down to 31%. This can be very difficult to do for a lot of people. There are also other requirements such as it has to be a primary residence. Even if they are eligible for HMP or HAMP then they have to enter and complete a trial payment period.

[Godhumor]

11. The lender is on the hook to drop the DTI to 38%

Not the borrower. If a loan meets the eligibility requirements (Primary residency, upaid principal less than $730K, etc.) the lender is first to drop the interest rate to try and meet the 38%. If the interest rate bottom is reached without making the 38% the loan the term can be extended up to 40 years.

The 38 to 31% is not the government paying for the whole thing; instead lenders are reimbursed for half the cost to reach 31% (A dollar-for-dollar match, if you will).

[WriteDown]

14. Not exactly....

The lender has to bring the DTI down to 38% using the governments criteria, but if the borrower's other expenses are high and its not possible to bring it down to 38%, then they are out of luck. Its somewhat of a joint effort. I was just trying to keep it as simple as possible, but see that you are familiar with it.

[Godhumor]

15. Bingo

For anyone following this subthread, in actuality there is a 2% bottom on interest rates (as in interest rates cannot fall below 2% when trying to get down to the level) but the 40 year term extension helps considerably with those who are that drastically underwater. I think the bigger problem for people is qualifying for the 55% back end DTI (Includes all debt not just mortgage), as, even at 31% DTI for the mortgage, student loans, car loans, medical bills, etc. can easily drive total DTI well above the 55% threshold.

[WriteDown]

16. We are on the same page...

Nice to know there are folks that understand it.

[Godhumor]

18. Thinking the same thing

It is a dense piece of work, but one I wish the media did a lot better job explaining other than "You can get a modification!".

[Godhumor]

5. There's actually a very thorough report explaining why servicers are not modifying more

Great, but lengthy, write-up on the reasons servicers are incetivized to foreclose as oppose to modify:

"Why Servicers Foreclose When They Should Modify and Other Puzzles of Servicer Behavior"

http://www.consumerlaw.org/issues/mortgage_servicing/content/Servicer-Report1009.pdf

At the very least, check out the executive summary at the beginning.

[notadmblnd]

7. in other words there's more money for the servicers if they foreclose

not that homeowners can't meet the eligibility criteria as stated in another post by someone I suspect is a banker.

[Godhumor]

8. Servicers are driving this as banks are generally the originators

And very few originators retain servicing for subprime loans (i.e. the bank makes the loan then sells it off and wipes its hand clean of the whole thing).

But, yes, money to investors and protection of servicers' credit ratings are the driving force behind non-modification behavior.

[WriteDown]

10. The whole thing cracks me up...

It leaves out that there are actually two types of servicing including risk-based and non-risk-based. Also sometimes called fee based and non-fee based. The ramifications for losses are starkly different depending on which type of servicing you are doing. It also left out important points such as pass-through rates. It is unfortunately woefully uninformed.

[Godhumor]

12. Different types of servicing are addressed in the article proper

All the way through to discussing that different tranches in the same PSA pool will desire different outcomes based on how the pool was divided up to begin with.

[WriteDown]

13. But there conclusions are all based on fee-based servicing..

and although that is getting more and more popular, its a bit disingenuous. There is a reason that servicers are taking a bloodbath.

[Godhumor]

17. Oh I know, however this article was not to establish loss

But to explain some possible reasons why servicers might chose to forego modifications. The most neglected loans as far as modifications go are the exoctic fee-based mortgages, which is why the authors decided to base their analysis on the at-risk pools.

It is not a perfect article, but it does address many of the issues with pools based on at-risk loans with tranches that have different desireable outcomes when faced with a non-performing loan.

[WriteDown]

9. You can believe conspiracies...

or you can believe the actual underwriting requirements of the program. Read through them and you'll see that they are hard to meet. Also, let's not forget that even if one does meet the requirements, the modification must be submitted to the goverment for final approval..

http://www.freddiemac.com/singlefamily/service/hmp_underwriting.html