The Obama administration's foreclosure relief plan is off to a slower-than-expected start, partly because of what the government calls an "uneven" performance by loan services, with some of the biggest financial firms showing poor participation rates.
Treasury Tuesday released the first of what it says will be detailed monthly reports on the loan modification program, known as Making Home Affordable.
Thus far, some 230,000 modifications are underway, according to the report. More than 400,000 modification offers have been extended. About 1.4 million borrowers have sought information about the program. (Success-rate data are not available yet because participants must stay current on their loans for three months.)
The Treasury report said though the program had made "rapid progress" it conceded that "servicer performance has been uneven."
The Treasury's point man on the project, Michael Barr, the Assistant Secretary for Financial Institutions, said he was "disappointed in the results of some of the servicers", but added that all of them have "operational elements they need to approve."
Just last week, after a high-profile meeting between servicers and officials from Treasury and HUD, the Obama administration essentially lowered its goal for modifications in the the first six months of the program, saying it wanted to rework 500,000 loans by November.
When it was first outlined in late February, the White House said it hoped to modify 3-4 million mortgages in two years, which would mean 375,000 to 500 million a quarter.
For the first time, the government data showed specific results for the participating firms based on loans that were delinquent by 60 days or more. More than three dozen firms are participating, including such industry giants (or their subsidiaries) as JPMorgan Chase , Citgroup, Wells Fargo , Bank of Americaand Goldman Sachs .
In general, the bigger firms had some of the lowest offer rates, while smaller ones had the best. Wells, for instance, has extended offers to just 12 percent of those eligible, Bank of America, which has the most loans eligible under the program (796,000) had 13-percent rate.
The best performers among the top banks were JPMorgan (30 percent) and Citigroup (21 percent), which is partly owned by the government.
NationstarMortgage ranked first with a 45-percent offer rate. Saxon Mortgage Services (37 percent) and AuroraLoan Services (36 percent) were next.
Though some of those rates might appear impressive, data on participation rates tells another story. Only 19 percent of Nationstar's eligible borrowers had actually undertaken a modification.
JP Morgan, which has extended the most offers (117,259), had managed 20 percent.
Saxon, another big player in the program, had a 25-percent rate.
"The big takeaway is that none of the servicers are doing exceptionally well," said Andrew Jakabovics, a housing expert at the Center for American Progress.
Barr of the Treasury said it was "too early to make firm judgments" about the wide divergence between offer and participation rates.
The massive $75 billion program launched in the early spring is off to what even supporters consider something of a slow start, but it has already proven more effective than any other recent federal effort.
In all, the government hopes to assist as many as 7 million to 9 million needy homeowners, through loan refinancing or modification to prevent foreclosures. About 85 percent of the estimated 55 million outstanding mortgages are covered under the program.
Foreclosures continue to run at a record pace. Foreclosure filings, defined as a default notice, bank repossession or auction sale notice, were up 4.57 percent in June over the previous month, according to RealtyTrac; one in every 380 homes in the U.S. had received a foreclosure filing.
But what was once the plague of unconventional mortgages—such as subprime and no-documentation loans—synonymous with the easy money days of the credit bubble is now the stuff of prime loans held by more creditworthy borrowers who are losing their jobs to the recession and thus becoming delinquent on their payments.
What’s more, a three-year side in housing prices has put many homeowners under water, such that houses are worth much less than the underlying loans, making it difficult for people to refinance and reduce interest costs on adjustable rate mortgages with ballooning payments.
The Making Home Affordable is designed to help homeowners already in trouble (the loans have become delinquent) and those who may be heeded for it. Loan services receive a fee of $1,000 per loan modification for the former, and an additional $500 for the latter. In addition, they receive a $1000 a year for three years if the modified loan stays current.
The program also covers underwater borrowers. What’s more, the loan-to-value ratio, which started out at 105 percent, is now 125 percent, meaning a homeowner with a $250,000 loan on a property valued at $200,000 is eligible for refinancing aid.
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Fits And Starts
The MHA has experienced the usual start up problems of any big and complicated federal aid program, which may partly explain its lower-than-expected volume. Industry professional and analysts say it has taken time for companies to integrate their technology with the program's and hire and train workers to handle the high volume of loans.
Thus far, the Obama administration appears to be responsive to both criticism and suggestions for improvement.
It is implementing an audit mechanism for applications that been rejected, which may be meant to address the criticism that the program has no appeal process.
It is now considering expanding Making Home Affordable to unemployed homeowners, as the jobless rate inexorably heads to 10 percent.
And in a broader effort to minimize the impact of foreclosures on the housing market as well limit individual financial hardship, the administration says it is considering a proposal that would allow people who have lost their homes to stay on as renters.
Barr Tuesday would not comment on that possibility except to say the government is "always looking to refine the program and is continuing to roll out elements."
He did say there would be more details next week on the second-mortgage program, which was added to Making Home Affordbale after its original launch.