What happened to mortgage relief?
If you were still digesting your Thanksgiving feast on Monday, Nov. 30, you may have missed the Treasury Department’s announcement to pressure mortgage companies to complete more loan modifications. According to the Treasury Department they will be sending in “SWAT” teams, their words not mine, to monitor the eight largest lenders out of the 71 that agreed to participate in the government’s program to modify home mortgages.
In case you can’t recall exactly which government program is in line for swatting, let me refresh your turkey soaked brain. In February the government established a program called Making Home Affordable, intended to encourage participating lenders to modify home mortgages in an effort to reduce the number of foreclosures. However, the program is bursting with shortcomings and often provides little relief to borrowers who have lost their jobs or who owe far more than their homes are worth.
The oversight panel created by Congress reported last month that fewer than 2,000 of the 500,000 loan modifications then in progress had become permanent. Initially the program was hoping to save three to four million households from foreclosure, but the numbers now look closer to one or one and a half million.
Some of the problems associated with the program are of course qualification issues and paperwork. In order to qualify, mortgages must be owned or backed by Fannie Mae or Freddie Mac, and the mortgage owed cannot be more than 125 percent of what the home is worth. According to The Bradenton Herald, nearly 60 percent of the homesteaded properties in Manatee County that fell into foreclosure in October exceeded that 125 percent cap. In addition, unemployed homeowners do not qualify and in Florida only homesteaded properties are eligible, not to mention the mountains of paperwork that needs to be processed. According to the government only one-third of applicants have submitted all of the required documents, and even if the homeowner has managed to submit the required paperwork much of it is being lost in a bureaucratic haze.
The incentive for participating lenders is $1,000 per loan modification followed by another $1,000 a year for up to three years. However, the servicers who actually collect payments from homeowners collect fees from investors who own the loans and are, therefore, not inclined to modify loans. The SWAT teams will be visiting lenders as well as requiring daily progress reports from servicers designed to force them to meet their obligations under the program. Mortgage companies that perform poorly in the modification program could face monetary penalties and sanctions, but at this point no one is saying what form these penalties might take. Since the Making Home Affordable program is voluntary to the banks, to say it’s going to be difficult for the Treasury Department to get them to perform more modifications would be a vast understatement.
Even though it looks like we’ve turned the corner on the housing crisis, it’s still anticipated that the foreclosure rate will continue to increase through next year because of growing unemployment. The administration is looking at ways to expand the program to include help to unemployed homeowners, but it’s unlikely this will happen anytime soon.
There is something about SWAT teams and bankers that just seems a little too Men In Black to me. I’m picturing three piece suits and calculators imbedded in the palms of their hands, but in a crisis, whatever works, works.