Rising US Foreclosures Dim Outlook For Loan Modifications
By Jessica Holzer, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- U.S. officials on Wednesday are set to defend their
effort to help borrowers obtain loan modifications amid rising concerns that the
government program is no match for the relentless pace of foreclosures.
Mortgage servicers have had trouble coping with the surge in applications from
strapped borrowers and have complained of the program's complexity.
Now, rising job losses are placing loan modifications out of reach for more
and more households and pushing other borrowers who may have received loan
modifications into re-default.
"I think the program probably will be overwhelmed by the magnitude of the
problem," Mark Zandi, Moody's Economy.com chief economist, said.
"It's like using a small cup to remove water from the Titanic," Alys Cohen, a
National Consumer Law Center staff attorney, said. The administration, with its
recent badgering of mortgage servicers to improve their performance in the
program, has "switched from cups to buckets," she added.
The Treasury is set to release its second monthly report card on servicer
performance in the program early Wednesday. Later, top U.S. Treasury and
Department of Housing and Urban Development officials will defend the program
before a U.S. House Subcommittee.
Launched in April, the program provides hefty financial incentives for
servicers, borrowers and mortgage investors who agree to loan modifications that
meet certain standards. The modified loan must complete a three-month trial
period before it is finalized.
The administration aims to offer three to four million homeowners a government
loan modification within three years, and officials insist they are on track to
meet that goal.
Still, about 4.6 million people will nevertheless lose their homes by the end
of next year, Moody's Economy.com predicts, helping to bring the total carnage
of the housing bust to 9 million homes lost by the end of 2011.
Some people who are offered loan modifications may not accept them due to
confusion about the documents they must sign, Brian Dorpalen, national housing
director for the Association of Community Organizations for Reform Now, or
Acorn, said. Of those who do sign up for the program, a portion won't survive
the trial period or will re-default later down the road.
Housing advocates are pushing the administration to hold servicers' feet to
the fire. In direct contravention of the program's rules, servicers are
continuing foreclosure proceedings against borrowers who are still under review
for a government modification, Dorpalen said.
The administration should require participating servicers to take steps where
possible to help borrowers where a loan modification is possible, Cohen argued.
Under the current program, "people don't have a clearly-articulated right to
obtain one," she said.
David Sisko, a director at Deloitte who advises mortgage servicers, said he
expects foreclosures to continue to soar as job losses make it more difficult
for servicers to modify loans. The industry is "trying to turn lemons into
lemonade," he said.
Lawmakers on Wednesday are likely to press officials on ways they can help
people who have lost their jobs stay in their homes. At a recent Senate hearing,
a senior HUD official said the administration was exploring ways to help such
people.
Moody's Economy.com's Zandi said the administration could consider expanding
unemployment insurance to cover mortgage payments. It could also adjust its
loan-modification program to make it easier for borrowers to receive loan
principal reductions subsidized by the government.
Zandi noted the administration has already set aside $75 billion for
foreclosure prevention. "If it's no going to work, take the money and try
something else," he said.
-By Jessica Holzer, Dow Jones Newswires; 202-862-9228; jessica.holzer@
dowjones.com
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09-08-091644ET
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