As of July, only approximately 9 percent of eligible borrowers had seen their mortgage payments reduced with modification. Many banks that have received federal bailout money have yet to change a single mortgage, according to a report by the Government Accountability Office report on the Home Affordable Modification Program.
The GAO report found specific problems with the Home Affordable Modification Program. For example, Treasury has not fully developed all its subprograms or promulgated regulations for conducting the modification, and the initial design of the program limits its potential help to borrowers. More importantly, Treasury has developed but has not finalized an oversight structure for the modification program and is not systematically evaluating servicers’ capacity during program admission.
The Obama Administration introduced this comprehensive financial stability plan to address the key problems at the heart of the current crisis and get our economy back on track. A critical piece of that effort is making homes affordable, a plan to stabilize our housing market and help up to 7 million to 9 million Americans reduce their monthly mortgage payments to more affordable levels.
The Home Affordable Refinance Program gives up to 4 million to 5 million homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac an opportunity to refinance into more affordable monthly payments. The Home Affordable Modification Program commits $75 billion to keep up to 3 million to 4 million Americans in their homes by preventing avoidable foreclosures.
Unfortunately, foreclosure rates keep rising and many borrowers are lost in the process of modification. Many borrowers are frustrated with the lengthy and cumbersome process. They are told to send voluminous financial documentation to their mortgage servicer and then they wait for many months to hear about a decision. When they call for an update they never speak to the same representative. Often they are told they do not qualify for a modification and may not be told why they do not qualify. Thus they are left facing foreclosure.
Preliminary eligibility requirements for participation in the modification program include that the home be the borrower’s primary residence, the property must be a single-family dwelling with an unpaid principal balance no greater than $729,750, the loan must have originated prior to Jan. 1, 2009, and the first lien mortgage payment must be more than 31 percent of the homeowner’s gross monthly income.
The modification program requires borrowers who are participating to make temporary payments for at least three months. The temporary payments, however, are not their modified payment, and they are not guaranteed the modification despite making temporary payments.
There are 38 companies participating in the government program; however, there are some holdouts that have yet to sign up. The list of servicers who have agreed to participate in the plan are listed in the GAO report.
There has been some push back by homeowners as well as legal aid advocates. A class action lawsuit has been filed in federal court in Minneapolis regarding the problems with the loan modification program. The suit asks for an injunction against all foreclosures until the federal government puts safeguards in place. This group is seeking to stop home foreclosures and is saying that the program fails to give them proper notice or the right to appeal when they’re rejected. The group is calling for more transparency.
Cynthia A. Riddell, an attorney with Riddell Law Group, focuses on bankruptcy, real estate foreclosure, short sale and other loss mitigation issues. She can be reached at (941) 366-1300, ext. 1325.