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Government Mortgage Program: There's A Bright Side

The bright side to the government's "Making Home Affordable" program: It has kickstarted the private industry into modifying more loans.



) -- If there's anything positive to highlight about the government's response to the mortgage crisis, it's that the Obama administration's "Making Home Affordable" program has kickstarted the private industry into modifying more loans through proprietary programs.

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The most recent data released by the Treasury Department on Friday show that the federal program's progress slowed further in July, and that people are canceling federal workouts at a remarkable pace. The vast majority of homeowners who abandon the federal program but stay in their home do so through an alternative offered by a bank.

About 630,000 people have canceled workouts offered by the Home Affordable Modification Program (HAMP), slightly less than the 678,000 who are still in active trials or permanent modifications. Over 45% of those who canceled a trial mod moved into an alternative modification offered by a bank, while 31% of those who weren't eligible for the program did the same.

The statistics can be misleading about the industry's progress in modifying loans, however. The country's four largest mortgage-servicers,

Bank of America

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Wells Fargo

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JPMorgan Chase

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, represent 63% of the 1.5 million HAMP-eligible borrowers. They have moved an average of 28% of those homeowners into permanent modifications.

But, for instance, while Bank of America has only moved 76,300 borrowers through HAMP since its initiation, it has modified loans for 100,000 borrowers in 2010 alone using alternative workouts. Since January 2008, it has completed more than 665,000 mortgage modifications.

"When a customer is found to be ineligible for HAMP or falls out of a trial modification, we consider an alternative home retention program, and if no viable solution is available, a dignified exit from homeownership," said Rebecca Mairone, an executive in Bank of America's mortgage division.

Wells Fargo and JPMorgan Chase have reported similar trends.


examined the myriad difficulties the country has faced in resolving the mortgages of troubled homeowners - from the

government program's problems, to

banks' response , to

homeowners being targeted by

mortgage-fraud schemes - in a special series this week.

In announcing the latest statistics, the government acknowledged that progress has been slow-going and that new problems have arisen since President Obama first announced "Making Home Affordable" in February 2009.

"While there has been some stabilization in the housing market, it remains clear that we have more work ahead," Raphael Bostic, assistant secretary at the Department of Housing and Urban Development, said in a statement. "Through the Obama Administration's efforts over the past 16 months, we have seen increased price stabilization and improved home affordability for prospective, qualified homebuyers. At the same time, we know that we must continue to provide support to underwater borrowers, unemployed homeowners, and to the nation's hardest hit neighborhoods."

While the result may seem like a black-eye for Obama administration's long-running campaign to help struggling homeowners, Treasury spokeswoman

Andrea Risotto says otherwise. She points out that the government has tried to be nimble in responding to HAMP's difficulties. "Making Home Affordable" has added programs outside of HAMP to incentivize foreclosure alternatives like short sales, as well as a "Hardest Hit" fund to provide more resources to states that have seen sharp home-price declines and elevated unemployment levels, Risotto argues.

Plus, Risotto says, HAMP helped set standards for what an "affordable" mortgage is, by outlining the ideal income-to-loan ratio and other statistics. If the government hadn't pushed banks into a "loss mitigation" mindset - from a strategy that favored foreclosures and collection agencies - things could be a lot worse.

"What "Making Home Affordable" has done in many ways is, it forced their hand a little bit," Risotto said in an interview last week. "... For many of the homeowners who were unable to access "Making Home Affordable" for whatever reason, a lot of mortgage servicers are using that same model in their own proprietary modifications."

-- Written by Lauren Tara LaCapra in New York


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