Is Obama's Mortgage Modification Program Failing?

More than 1/3 of the 1.24 million borrowers who've enrolled in President Obama's mortgage modification program have dropped out. The program was a $75 billion initiative to help borrowers find ways to keep their homes, but some believe that the program hasn't helped most people who need it.

Last month, 150,000 borrowers left the program, which leads to a total of 436,000 who've quit since March 2009. Experts believe that many of the borrowers will end up in foreclosure, while the Obama Administration believes they will get help elsewhere.

One of the main reasons for the dropouts is that the Obama Administration forced banks to sign borrowers up without asking for proof of income. When income information was provided, the borrowers did not qualify for alternatives that were profitable to the banks. Banks are saying that some borrowers are not sending the necessary paperwork, while many borrowers are saying that the banks lost their information. Since that time, the Obama Administration has asked banks to collect two recent pay stubs at the start of the process. The borrower is then required to get their most recent tax return from the IRS.

Most of the rejections occurred during the trial period, which lasts for three months. Roughly 6,300 borrowers dropped out after their loans were modified. About 27 percent of the borrowers started the program, received loan modifications and are making payments on time. Some borrowers are making selective defaults, in which they simply refuse to continue making large payments on a home with a loan that is greater than the value of the property.

"The majority of these modifications aren't going to be successful," said Wayne Yamano, vice president of John Burns Real Estate Consulting. "Even after the permanent modification, you're still looking at a very high debt burden."

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Six Horror Stories of Mortgage Modification

Ron Nash, Carlsbad, Calif.
Ron Nash is not someone who's shy about pushing to get what he wants; he's a motivational speaker, headhunter and author of "How to Find Your Dream Job; Even in a Recession." But when it came to obtaining a mortgage workout, he wasn't getting anywhere -- even after months of trying. He finally wrote a letter to the president of his lender to try to resolve the issue. The results were very gratifying -- at first. After that, however, and after he was asked to send in all his paperwork for the fifth time, he didn't hear from them again for six months. Then, recently, he finally got a call back with a loan workout offer.
Full Story: Why He Chose to Walk Away

Courtesy CNNMoney.com

AFP

BlackVoices.com

Mortgage Horrors

Sue Wright, Las Vegas, Nev.
Real estate agent Sue Wright was one of the earliest homeowners to apply for the FDIC's mortgage modification plan to help insolvent IndyMac's at-risk borrowers keep their homes. But because she was current on her mortgage payments, the bank said it couldn't help her and advised her to stop making payments for two months. She did that and called back right after her second payment was overdue. She was given a plan with a reduced interest rate and told to make the new payments for three months and the modification would become permanent. But after doing that, she received a letter from the bank telling her the modification was off; the investors wouldn't approve it.
Full Story: The Crazy Part Is ...

Mortgage Horrors

A. G. Chancey, Longwood, Fla.
Chancey has been trying to arrange a mortgage workout since August 2008, when she was only two months behind on payments. Today, after dozens of phone calls to her lender, she's made progress. But she's now five months behind. She has been in the home for 23 years, but family health problems, divorce and economic factors have conspired against her and she's never been able to substantially pay down the loan. She tried to apply for a mortgage workout, but no one ever seemed to know her status.
Full Story: She May Get Good News Yet

Mortgage Horrors

Raul Medina, Moorestown, N.J.
No good deed goes unpunished, they say, and Amber and Joe Tardiff might be forced to agree. When Joe's good friend and partner in a landscaping business, Raul Medina, was left a parapalgegic by an auto accident, the Tardiffs took on the Good Samaritan task of dealing with Medina's mortgage issues. Medina, who's also a minister, owns two properties, his residence and one he bought for a Moorestown, N.J., church to provide shelter for the homeless. But after seven months of roadblocks, wrong numbers, voice mails to people who no longer work for the company, they were told that the lender does not offer any loan modifications.
Full Story: His Only Options Now

Mortgage Horrors

Richard and Pati Kays, Stuart, Fla.
"He's 83 and I'm 73, with separate assets, stuck in the mortgage mess. We're not quite in foreclosure but in distress over the inability to sell or refinance," says Pati Kays. Pati married husband Richard seven years ago. He's a retired high-steel construction man. She's a retired attorney who owns five cottages she rents out. Richard was supplementing his pension and social security with the rent from a mortgaged duplex he owns. Not any more. His adjustable rate mortgage reset, and his payment on the $430K mortgage went from $1,750 a month to $2,750. The rent he now receives is only $1,800 a month. Trying to head off problems, Richard called his lender to ask for a workout.
Full Story: Why He's in a Bind

Mortgage Horrors

Ken Mobley, Tampa, Fla.
Ken Mobley had some of his best earnings years ever in the mid-2000s, as an advertising sales representative for a media company. But with newspaper ad revenues in decline, he was "reorganized" by his company and now sells ads to mom-and-pop businesses. He called his lender last fall hoping for a hardship consideration and asking for a two-month postponement of his mortgage payments. He wanted to have them added to the end of his mortgage. Mobley says his credit rating was excellent, and he was merely trying to free up some cash for the holidays. The effort failed.
Full Story: His Catch-22

Mortgage Horrors

Officials from the Obama Administration argue that while some borrowers are not getting help from the program, they are getting help in other ways. The administration sent out statistical data showing that nearly half of the borrowers who fell out of the program received alternative modifications from the lenders.

There is another option for many homeowners called a "short sale." This is when the bank agrees to let the borrower sell the property for an amount that is less than the loan value. While the borrower still owes money on the loan, it can result in less of a hit to the borrower's credit score. The Obama Administration is encouraging short sales by giving $3,000 in moving expenses to those who complete a sale or turn over the deed of their property to their lender.

One fundamental truth about the most recent economic downturn and real estate crisis is that there are some problems that don't have simple solutions. The Obama Administration has engaged in quite a bit of effort to manage the economic downturn, and the magnitude of losses our economy took as a result of the real estate crisis simply can't be managed by a quick government bailout. All the while, there are many who argue that the billions used to bailout Wall Street firms could have been used to bailout homeowners. The massive bonuses paid to Wall Street executives serves as a serious case-in-point.

Dr. Boyce Watkins is the founder of the Your Black World Coalition and a Scholarship in Action Resident of the Institute for Black Public Policy. To have Dr. Boyce commentary delivered to your email, please click here.