Government efforts to stem the foreclosure crisis are struggling, with only a small fraction of at-risk homeowners actually receiving help, according to an official report released today.
The Congressional Oversight Panel (COP) said that while the Treasury Department is making progress in helping homeowners avoid foreclosure, those efforts are still lagging well behind the foreclosure crisis. It noted that as of Februray, only 168,000 homeowners had obtained permanent loan modifications through the government Home Affordable Refinance Program (HAMP), out of 6 million homeowners 60 days delinquent or more on their mortgages. For every borrower who obtained avoided foreclosure through HAMP in 2009, the report said another 10 lost their homes last year. A total of 2.8 million homeowners received foreclosure notices last year, the report said. The HAMP program was widely criticized last year for failing to provide timely relief to homeowners. Launched with great fanfare in March 2009, it soon bogged down as lenders complained of difficulty implementing the program while borrowers flooded them with applications for modifications. The approval rate surged after the administration implemented new measures intended to prod lenders into action; a total of 1.35 million homeowners have been approved for temporary modifications, the first step of the process, as of February 2010.
Unlikely to help most borrowers
The Treasury Department has also initiated new programs to reduce the loan principal owed by homeowners who are “underwater” on their mortgages and to provide temporary assistance for unemployed homeowners as well. But even with those efforts, the COP report said it is likely that the government’s programs will be unable to assist the vast majority of at-risk homeowners. The report questioned the long-term sustainability of HAMP’s anti-foreclosure efforts, noting that many homeowners continue to experience severe financial strain even after obtaining a loan modification. It said the typical post-modification borrower continues to pay an average 59 percent of total income on debt service, including mortgages, car payments, credit cards and other debt.
Many expected to default again
With their financial resources under strain, a small disruption could easily send such borrowers back into delinquency, the report said, predicting that many will eventually default and go back into foreclosure. While the report commended the Treasury Department for being willing to try new approaches to the foreclosure crisis, initiating half a dozen new anti-foreclosure programs in 2009, it said the variety of these programs also generate confusion and provide incentives for lenders to delay implementation in the hopes of obtaining more favorable terms later on. It said delays in implementing current efforts underscore the need for the Treasury Department to get its news initiatives up and running quickly, noting that impacts of current programs are not likely to be felt until 2011, two years after they were first implemented and three years after the beginning of the foreclosure crisis.
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