December 8, 2023

Foreclosure Aid Fell Short, and Is Fading

Officials unveiled a $1 billion program to offer loans to help the jobless pay their mortgages until they could find work again. It was supposed to take effect before the end of the year, but as of today, the program has yet to accept any applications.

“We wait and wait, and they keep saying it’s coming,” said James Tyson, 50, a Philadelphia homeowner who lost his job a year ago.

That could be an epitaph for the administration’s broader foreclosure prevention effort, as tens of billions of dollars remain unspent and hundreds of thousands of homeowners have been rejected. Now the existence of the main program, the Home Assistance Modification Program, is in doubt.

Saying it is a waste of money, the Republican-controlled House voted on Tuesday night to kill the foreclosure relief program. The Senate, which the Democrats control, will pursue a rescue. But Democrats, too, consider the program badly flawed.

The effort has failed to stanch a wave of foreclosures and a decline in home prices, which have fallen for six consecutive months and are now just barely above their recession low, according to a key index updated on Tuesday. All of this threatens the fragile economy, which is also being buffeted by foreign crises.

“The banking industry fought us tooth and nail, and we ended up with a program that is failing homeowners,” said Representative Zoe Lofgren, a Democrat from California. “The administration doesn’t give us real enforcement or answers; we just get the old yokey-doke.”

Yet the need remains great. There were 225,000 foreclosure filings in February, according to RealtyTrac. About 145,000 homeowners are in trial modifications under the Obama program. An examination of federal documents and lawsuits, and interviews with legislators, state attorneys general, housing counselors, homeowners and regulators, reveal a federal mortgage modification program crippled by weak oversight, conflicts of interest, mind-numbing complexity and poor performance by many participating banks.

For example:

¶Congress set aside $50 billion for foreclosure prevention, amid administration projections that three million to four million homeowners would benefit from modifications. So far, the Treasury Department, which oversees the program, has spent slightly more than $1 billion, and just 607,000 homeowners have received permanent loan modifications (of those, 11 percent have defaulted).

¶The companies that service mortgages, typically large banks, continually lose homeowner paperwork and incorrectly tell homeowners that they must be delinquent to qualify.

¶Treasury officials have not fined any servicers, and the government-controlled company hired by the Treasury to oversee the program has expressed reluctance to crack down on banks.

Interviews with a dozen homeowner applicants in four states reveal a familiar pattern: Banks deny many who, by income and credit scores, appear to qualify. And homeowners end up weighed down by legal fees and facing foreclosure.

“I call constantly, they lose all my paperwork, and the same guy never gets on the phone,” said Ada Caceres, 53, who owns a modest home in Staten Island.

Ms. Caceres has struggled to make mortgage payments since her hours as a bartender were cut. She applied for relief, and her bank, JPMorgan Chase, twice granted temporary modifications. She made every payment.

Last August, Chase promised a permanent modification. Then it rescinded the offer, documents show.

“I love my house,” said Ms. Caceres, who is still negotiating. “It’s a good neighborhood. But oh my God, you want to just give up.”

Homeowners can appeal denials, but the odds are not in their favor, says the program’s inspector general. A first step is a hot line providing counseling, from an agency created by mortgage servicers.

Treasury officials argue that the mortgage program has kept more than half a million American homeowners out of foreclosure and has pressured banks to offer in-house modifications. These private modifications, however, typically offer terms significantly less favorable to homeowners than what the government program offers.

Michael S. Barr, who was a top Treasury official involved with the program, says the Obama administration sought to help homeowners and encourage banks even as it protected taxpayers.

“We tried to bring some order out of the chaos,” said Mr. Barr, now a University of Michigan law professor. “Taxpayer money was only used for successful modifications. I think that was directionally the right thing to do.”

Trouble at the Start

In the winter of 2009, the Obama administration’s urgency to address foreclosures was palpable. Hundreds of thousands of families had lost homes, and in towns from Florida to California to Nevada, foreclosure slums took root, marked by boarded-up homes and uncut grass.

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