Loan Modification Programs Have Not Achieved Their Goals

The complaints about the success – or lack thereof – of the Home Affordable Modifications are getting louder.

By all accounts, the program has had far less success than government officials hoped. Out of one million homeowners who received a temporary loan modification from their lenders, just 116,000 have received a permanent loan modification, or 11 percent.

But the number of people that have received permanent loan modifications is probably only a small fraction of the entire number of people that either applied for a loan modification under the Obama plan, or wanted to.

The number of homeowners receiving a permanent loan modification is far less than the 4 million homeowners President Obama said would be helped when he announced the program.

Homeowners in trouble are running into significant roadblocks that are stalling efforts to get more loans permanently modified, including:

• Homeowners who are current on their mortgage but are at risk of imminent default are being told by lenders that they can’t be helped unless they are 60 days late on their mortgage.
• Uneven training means homeowners hear different stories every time they call their lender.
• Important documents are frequently lost. Homeowners report sending in documents over and over again.
• Three month trial loan modification periods have stretched into 5, 6 or even 8 months.
• Homeowners told they have been approved for permanent loan modifications cannot get their lenders to send the paperwork.
• Homeowners who might have qualified for a temporary loan modification have since lost their job, hence failing the verification process required for a permanent loan modification.
• Qualifying for a permanent loan modification continues to be an opaque process, very little of which is revealed to the homeowner. However, it is clear that there are other requirements homeowners must meet other than the guidelines set forth by President Obama for the HAMP program.
• Some lenders are better than others at handling loan modifications. Recent reports circulating indicate that some big lenders have failed to deliver on permanent loan modifications and the number of borrowers receiving permanent loan modifications is insignificant.

Lenders say that homeowners don’t understand that every piece of financial information must be reverified. It’s like qualifying for a home loan all over again. Lenders also add that homeowners don’t always send in their information, although they admit that documents have been lost.

However, some people working with homeowners wonder if lenders actually realize that the problems are getting worse for homeowners and dragging out the loan modification process isn’t helping the situation.

Homeowners who are delinquent in their mortgage payments and own homes that are underwater (worth less than the mortgage balance) are starting to give up and simply walk away from their homes and loan obligations.

Another problem is that some homeowners in trial loan modifications no longer live in their homes. They’ve moved to find better job opportunities or for other reasons. But if you no longer live in your home, you will not qualify for a permanent loan modification under HAMP.

Homeowners who were granted a temporary loan modification and now, months later, find that they cannot get a permanent loan modification are facing foreclosure. According to RealtyTrac, a foreclosure data collection service based in Irvine, Calif., the number of foreclosures in 2010 could reach 4.5 million, a 50 percent increase over 2009.

Across the country, lenders and housing officials are frustrated by the pace of loan modifications and loan refinancing under HAMP.

Michael van Zalingen, Director of Homeownership Services of Neighborhood Housing Services of Chicago, says of the borrowers that have applied for loan modifications, about 23 percent have received trial loan modifications but only a fraction (about 4 percent) of those have been made permanent.

According to Dick Lepre, a loan agent with RPM Mortgage in San Francisco, the ability to refinance loans under the Making Home Affordable Refinance plan has not been significant. He thinks that in some high value areas like San Francisco, and particularly in condo buildings where the original loans were not conforming, these borrowers are still having a hard time finding a lender to refinance their loans.

This week, Bloomberg News reported that the Obama Administration is looking into restricting the lending industry’s ability to put a homeowner into foreclosure who has not yet been through the Making Home Affordable loan modification program. There are other HAMP program modifications being discussed, a sign that the Administration has noticed the program has had less than stellar results.

Meanwhile, the pace of layoffs has picked up again, just as the number of new homes sold fell to an all-time low in January. Economists are wondering if the “nascent recovery,” as Federal Reserve Chairman Ben Bernanke called it, is stalling.

One thing is clear, millions of homeowners are in financial trouble and are having trouble getting relief. Read some of their stories, and share yours, on my MoneyWatch.com blog, “Loan Modification Hell: Join The Club.”