We’ve written several posts on this site in recent weeks about the Making Homes Affordable program. The program was originally intended to help stem the tide of foreclosures that we’re seeing right now, and to help our ailing real estate markets. The program aimed to do this by helping homeowners with high interest rates to refinance into a loan with a lower rates, or to help homeowners that were in risk of foreclosure by modifying their current loans.
Thus far the program hasn’t been overly successful. With foreclosure rates on pace to reach 3.5 million foreclosures this year, the fact that the program has only seen 131,030 loan modifications as of July 6th is a bit disappointing. We’ve seen quite a bit of anecdotal evidence through the commenters on this site, as well as through other news stories that doing a refinance or loan modification through the Making Homes Affordable program isn’t as easy as it should be. Banks are throwing up roadblocks, and dragging their feet on implementing the program. More and more homeowners are finding themselves in trouble, and yet the banks don’t seem to want to move on these refinances and modifications. But why?
Reasons Why The Making Homes Affordable Program Hasn’t Done Very Well
When you get down to it, there are quite a few reasons why the program hasn’t really taken off.
- Banks don’t have enough resources: Traditionally the mortgage servicers have done relatively easy tasks of collecting payments and escrow funds, and dispersing those payments when needed. Dealing with borrowers who were in arrears typically was never more than 2-3 percent of their business. Now that the banks are being asked to modify thousands upon thousands of loans, often up to 25 percent of their portfolio, they are finding that they’re scrambling because they don’t have enough resources to handle the influx of requests. They don’t have the trained staff, and they just can’t handle the sheer volume.
- Mortgage loan modifications require a lot of work: Modifying a loan isn’t an easy process as it requires a lot of one-on-one work to underwrite the modified loans – especially when many of these loans weren’t properly underwritten in the first place. Also, since the reason a lot of these homeowners need to refinance is because they’ve lost a job or have other financial difficulties, they have to figure out if the borrower can afford the new payments. Doing all this stuff takes time, and personnel.
- Banks don’t see enough incentive to do the loan modifications: Another possible reason that loan mods and refinances aren’t being done is that the banks just don’t see enough incentive for them to follow through with them. We’ve seen anecdotal evidence from commenters that it takes months just to get a phone call back, and that the process is un-necessarily tough to navigate. Many banks also believe that if they just wait the borrower out, that they will “self-cure” or get caught up on their payments. Often that is the case. For the ones that don’t, the banks realize that the default rate for those that have modified their loan is still upwards of 50%, so they often believe that following through on the loan mods isn’t worth their time and effort.
- Not doing loan modifications makes the banks balance sheets appear healthier than they are: Many banks are avoiding doing the loan mods and refinances because it makes their balance sheets appear healthier. While it’s true that foreclosures will ultimately be more costly to the banks than loan modifications would be, they can often push the foreclosure process out to 18 months or more, and in the meantime they can keep the loans on their books at an inflated value. A lot of them would rather do that then a bunch of loan modifications.
- $1000 government incentive to the banks is next to meaningless: Some experts have said that the $1000 per modification incentive that the government is dangling in front of the banks is next to meaningless because of the costs the banks would have to incur due to the thousands upon thousands of loan modifications. The time, effort and costs involved in doing these loan mods is astronomical.
It’s pretty obvious from the statistics that the program really hasn’t done very much to help the foreclosure crisis thus far. So what can be done about that?
Government Plans To Get Things Moving
The government realizes that the program hasn’t helped very much so far, and now they’re looking to jumpstart things by moving from giving incentives, to doing more of the punishments for not following through. This past week the Obama administration sent out letters to representatives from the top 25 mortgage servicers asking them to assemble in Washington on July 28. At that meeting they plan to talk in depth with the companies about loan modifications, and why more aren’t being done. They also plan to demand that more be done to help troubled homeowners.
So now that the carrot hasn’t worked especially well, the government is taking out the stick. That letter the administration sent out on Thursday did not mince words. It demanded that the servicers begin “adding more staff than previous planned, expanding call centers beyond their current size, providing an escalation path for borrowers dissatisfied with the service they have received, bolstering training of representatives, developing extra online tools, and sending out additional mailings to borrowers who may be eligible for the program.”
And the laggards? Starting next month, the government plans to begin publishing data showing which servicers are doing well and which are doing poorly, thus trying to shame them into doing the right thing. And, of course, there is that July 28 meeting, in which all these points will be made, I suspect, rather forcefully.
Apparently, the only incentive left is a good swift kick in the rear.
We’ll see if these added steps have the desired effect. At this point, I’m not sure that they will.
What do you think about the Making Homes Affordable program? Why do you think it hasn’t been more successful? Have you had an unsuccessful attempt to refinance or modify your loan? Tell us about it in the comments.
More Making Homes Affordable Information
- Making Home Affordable Refinance Program Frequently Asked Questions
- Making Home Affordable Loan Modification Program Frequently Asked Questions
- Update: Modification Program Updated To Cover Second Mortgages
- Loan To Value Restrictions Eased – Up To 125% LTV Allowed Now
- My Experience With The Making Home Affordable Refinance Program
There has been some talk that refinancing would go better if done directly through the government. I don’t know whether that is true, and it would likely be a bureaucratic nightmare, but if it could get going, it would at least mean the government could earn some interest on the loans. But, overall, I think that you are right when you say that mortgage lenders just don’t feel the incentives.
Chad Pennycuff says
Great article Pete. I’ve talked to at least 50 families in and around my financial coaching business and absolutely NONE of them have seen one inch of progress on the loan modification front. I attended a client meeting with a bankruptcy attorney yesterday. Your research is very close to this attorney’s thoughts. He was saying Michigan passed some modification laws that went into effect July 5th and the industry still doesn’t really have a clue as to how all of these laws are going to work. As a general rule it seems that you have to be actually in foreclosure before the banks will even give you a shot at a loan modification. As a general rule, #1) avoid any companies wanting to charge you for a loan modification program.
Work directly with the lender. #2) Don’t buy into this false hope that government is going to fix things. Thus far they do not have a good track record. Prepare for the worst and you may very well be surprised.
Chad Pennycuff´s last blog ..“Free Credit Report” Beware of Bait and Switch
Paul @ FiscalGeek says
Okay I was supposed to be days away from closing but it dragged on for 6 weeks ultimately to have the rug pulled out from under me. Wells Fargo has definitely made my list and I lost out on historic lows in APR because of their inability to navigate the paperwork to make this happen. So frustrating!
Paul @ FiscalGeek´s last blog ..Are You Fiscally Negligent? Did Netflix Cancel You Because You Never Swapped Movies?
What should be noted is that loan modification companies and foreclosure rescue companies that take advantage of consumers have been joined by lawyers professing to assist homeowner’s. While upfront fees are not allowed in MOST states by loan modification companies, lawyers are allowed to charge up front fees. These “lawyers” are just as bad if not worse. The client tends to believe that they have a lawyer representing them, when in reality the law firms have call centers with a bunch of people who have little or knowledge of the law, or mortgages. They are paper pushers, and while the client believes they are getting legal advice, in actuality they are not and are being ill advised. Consumers should be cautious and make sure that they are not paying for a service not rendered. They should expect communication from their representative at least weekly, and should verify that what their being told is the truth with their lender.
Homeowner’s are always responsible for paying their mortgage payments. The only one with authority to allow you to skip your payments is your lender, and will be communicated in writing from the lender directly and will require your signature.
I’m in the same boat – I’ve been working on it for 3 months now, and I’ve had to harass them at LEAST 10 times to see where they were; it’s been 3 times that I’ve re-faxed in the information. I think you hit it on the head with: “Banks don’t see enough incentive to do the loan modifications”. They don’t want to lower your rate if you’ve been paying on time, it’s the sad truth, $ rules…
Toni Percival says
The day the President is set to give the lenders a swift fannie swat, July 28, 2009, my husband, our six children and I will possibly be spending our last day in our home. We begged our servicer to modify our loan. They told me, “We are not required to offer you a loan modification program.” I have prayed and begged so hard to save our home. I was naive enough to believe our honesty and spirit of cooperation was enough. There needs to be a watch-dog agency assigned to make sure these companies operate fairly and use the resources for the people.
Joseph Carmody says
At first I tried to get info. on streamline and modifications on one web site I filled out the form for debt modification, after I e-mailed the info. they called me and said they were going to e-mail me the form on an attachment to pre-qualify me for the modification, I ask him what the up-front fees were and he said about $875.00 which I thought werent to bad, so I said don’t send me an attachment mail it to me because I could not pull out attachments on my coputer, When I got the pre-qualafication form I read it completly twice turns out the up-front fees were to be $2,390.00 for this fee my credit card balance would be cut in half and the balance would be paid by me at $311.00 nonth for three years, and I would not be able to use this cards except for one and it had to be an emergency by permission.
I said no thanks trashed the forms and told them don’t phone or e-mail me because I was not interested in the modification any more after reading their modification debt. reduction forms.
That was the only web site I asked for information after that I got phone calls and e-mails from every body and their uncles, I got an Idea where they got my phone and e-mail do you? Make sure you read all froms from all this servicers working for lenders of re-finances and modificatios at least twice.
I have working on loan mod since last year. Finally, I have done 4 trial loan payments and after faxing paperwork and sending documents 6 times I am in the same boat as I was. I have called over 358 phone calls and of course run around did not receive paperwork send this send that which I have done everytime and have proof of receiving. I think the plan was to help but the banks do whatever they want to do because the govt has filled there [pockets with taxpayers money and the have there own rules. Obama really needs to stand up and put the banks accountable for getting these loan mod fin alized. That was the agreement with the bailout they got the money now they are not honoring the agreement. The banks always win and it is not in to do the right thing. They could care less if you stay in your house. They are to make money. The banks are not your friends they are busniss as usual… Keep calling write Obama whitehouse.gov. Let them know what is going on with everyones tax dollar. Call the whitehouse get on the tv do whatever it takes to get your voice heard. The banks are doding what they want to do. Dragging there feet.
Here is my story. I contacted my mortgage company and i do qualify undermakingmakin home afforadable act to refi my freddie mac backed loan. i presently have a adjustable rate and would like to refi to a fixed. my credit scores are good in low 700 range and my mortgage company wants to charge me 12,000 dollars to close because i am a little under the water with home value and they tell me this is all points that come from freddie mac. i think mortgage companys are ripping people off under this plan and claiming it is freddie mac who is charging the fees.i would like to know which mortgage companies sponser this plan . I understand in October 2009 which is in 2 weeks that open access bill will allow us to refi with ANY mortgage co. not just our present one. help. i need an honest co. to refi with under the making home affordable act as soon as possible because i will not refi with mine.
Tried to refi my house under the HARP Program.The Lender tells me that if I re-fi upto 125% of Loan to Value,then the interest rate is 5.125 for 15 year fixed and for re -fi the same loan upto 105% of loan to value the interest rate would be 4.25.The question I have is that if my home loan qualifies for the harp program whay am I paying a higher interest rate of 5.125 on a 15 year fixed????S
John Wright says
When gas went up in the 90s, President Clinton responded “It looks like someone is playing politics.” Who knows, maybe that was the day that a law being passed that stipulated they had to pay more than 75 million. Maybe they rose the gas rates to remind the President that they have the power to create and economic crisis, with one stroke of a pen. HOW DARE THESE OIL PIGGIES HOLD OUR PRESIDENTS AND THE AMERICAN ECONOMY HOSTAGE WITH THREATS OF ECONOMIC SABOTAGE!
But there is a bigger spill on the horizon my friend. This spill is going to effect every coast line in America. It is called the GREAT FORECLOSURE SPILL! It will also keep bubbling and bubbling and bubbling foreclosures. It is still going to happen, even though the American Tax Payer funded TARP with a potential 581 BILLION DOLLARS as BAIL OUT money to the piggy banks. I mean if the government is in the lending business, why not have just loaned it to the American homeowner directly? I mean these piggy banks caused the whole mortgage crisis in the first place. TARP gave one bank $45 BILLION DOLLARS! Just like Clinton said with the oil companies, it now looks like Bank of America is “playing politics with the modification process.” While dealing with the piggy banks, President Obama and Bush had the same look of fear on their face, as President Clinton did with the oil companies. HOW DARE THESE PIGGY BANKS HOLD OUR PRESIDENTS AND THE AMERICAN ECONOMY HOSTAGE WITH THREATS OF ECONOMIC SABOTAGE!
I dedicate to both the Piggy Oil Companies and Piggy Banks the following song by George Harrision and John Lennon. Appropriately titled “Piggies” I invite you to listen to it on youtube as you read the words
Have you seen the little piggies
Crawling in the dirt
And for all the little piggies
Life is getting worse
Always having dirt to play around in.
Have you seen the bigger piggies
In their starched white shirts
You will find the bigger piggies
Stirring up the dirt
Always have clean shirts to play around in.
In their ties with all their backing
They don’t care what goes on around
In their eyes there’s something lacking
What they need’s a damn good whacking.
Everywhere there’s lots of piggies
Living piggy lives
You can see them out for dinner
With their piggy wives
Clutching forks and knives to eat their bacon.
I AM FIGHTING BACK!