— The Obama administration said Thursday that its much-criticized program to help homeowners avoid foreclosure had met its initial target of 500,000 trial mortgage modifications about a month ahead of schedule, touting the news as a sign the effort is gaining momentum.
“We believe we are absolutely moving in the right direction and have reached an important turning point in our modification efforts … but we are nowhere near the finish line yet,” said Housing and Urban Development Secretary Shaun Donovan.
The $75 billion Making Home Affordable program was designed to ease foreclosures by helping struggling homeowners modify their mortgages through refinancing, reduced principal or longer payment terms.
But the program was slow in getting started, so the administration has been refining it. This spring it added cash incentives for borrowers and lenders to participate. And in July, Treasury Secretary Timothy Geithner and Donovan pushed the chief executives of mortgage servicers to increase staff, streamline application procedures and improve their customer response.
The administration set a goal of 500,000 trial modifications by Nov. 1. Geithner said new trial modifications are being added at a faster rate than homeowners are becoming eligible. Combined with a surge of about 3 million homeowners refinancing mortgages because of lower interest rates, the housing market is beginning to stabilize, Geithner said.
“The broad signs we’ve seen in the housing market … are encouraging,” he said. “They’re still early and we’re still living with some risk that housing is going to be a source of weakness for the broader economy, and you still face an unacceptably large number of families at risk of losing a home they can afford to stay in.”
But with unemployment continuing to rise and millions of homeowners with mortgages far above their property values, the program has plenty of doubters. About 12 percent of U.S. homeowners are at least one payment behind, and many aren’t eligible for the program. And even those who receive help often fall behind again. “It’s going to have a fairly marginal effect” on the foreclosure crisis, said Laurie Goodman, senior managing director of Amherst Securities in New York. “At the end of the day, you’re going to have relatively few successful modifications.”
Bank of America, the nation’s largest mortgage servicer, said this week it would meet the goal set for it by the administration of 125,000 modifications by Nov. 1. The company said it had started about 95,000 modifications as of Sept. 30. Wells Fargo reported Thursday that it had arranged 62,989 trial modifications under the program as of Sept. 30, nearly double the number of modifications it had done through the end of August.
Administration officials said about 40 percent of the estimated 1.2 million eligible homeowners are participating. To qualify, a homeowner must be living in the house and the loan can’t be above $729,500. The administration said it wants to modify 3 million to 4 million mortgages over the next three years.
About 90 percent of the modifications are in a trial period, and administration officials are pushing to make those modifications permanent by streamlining documentation.
The Associated Press contributed to this report. jpuzzanghera2@tribune.com
