Despite efforts by the federal government and banks to stop the home foreclosure disaster, frustrated borrowers are still battling red tape and delays in their attempts to negotiate lower payments, even as hundreds of thousands of them lose their homes every month. Banks say they’re swamped with inquiries and are just now completing the first mortgage “loan modifications” under the Obama administration’s Making Home Affordable plan, the program begun in April 2009 requiring borrowers to make three months of renegotiated payments before securing new loan terms.
Though the reasons are many, the problem is simple: Banks aren’t renegotiating enough loans to stem the rising tide of foreclosures, either through the federal program or on their own. If the banks wanted it to work, it would work.
The banks, however, continue to urge patience, particularly with the federal plan: “A lot of people had expectations about this program who didn’t understand it would take time, but the intention is there and we will move ahead,” said Rick Simon of Bank of America Home Loans.
Many banks started their own programs for modifying mortgages-lowering payments by changing the interest rate or the length of the loan, or in rare cases, forbearing some principal-before the administration’s plan was unveiled.
Foreclosures continue at a high rate. There are something like 2.5 million U.S. homes in foreclosure now, and 250,000 new foreclosures started every month.
Bankruptcy lawyers are particularly critical of the banks. The banks’ current efforts are “largely a farce,” according to Cathy Moran, a bankruptcy lawyer in Mountain View. She said most of her clients have been unable to modify their home loans. “I don’t think the people in the loan modification departments at banks are empowered to make deals,” Moran said.
“There is an amazing lack of staffing to support the flood of modification requests the banks are getting,” said San Jose bankruptcy lawyer Norma Hammes, past president of the National Association of Consumer Bankruptcy Attorneys. “Lenders lose stuff all the time, and they ask for stuff they don’t need. We have to jump over hurdles and through hoops.”
Chase is moving through a backlog of 155,000 loans “as fast as we can, having hired nearly 3,000 people to help in the process, including 950 loan counselors,” spokesman Thomas Kelly said. The bank, which took over failed sub prime lender Washington Mutual, has approved 87,100 trial loan modifications under the federal plan, Kelly said, and an additional 50,900 under the bank’s own program.
Help for homeowners
The Obama administration is working with banks to help homeowners refinance into new loans or modify the terms of their existing loans. Here’s how the programs work:
-Refinancing program: Helps homeowners with existing Fannie Mae or Freddie Mac loans who are current on their mortgage payments but unable to refinance to a lower interest rate because the value of their home has declined.
-Loan modification program: Helps homeowners who have fallen behind on their payments because of a loss of income or other change in circumstance. Banks may agree through this program to change the interest rate, length of the loan, or even forebear some of the principal.
For information, visit www.makinghomeaffordable.gov.
When I first heard about the new housing bill, that would force banks to modify loans to keep people in their homes, or face stiff fines. I was excited. A housing bill that would help keep people in their homes, and slow or stop the dreaded foreclosures. Woo Hoo! How wonderful for the many people faced with losing their homes.