Money

Loan Modification Hell: Should the Government Get a Failing Grade?

By Ilyce Glink

Updated on: April 26, 2011 / 9:21 PM EDT / MoneyWatch

Don't miss the comments: Are You In Loan Modification Hell: Join The Club, Loan Modification Hell: Income Requirements For New HAMP Rules, and Loan Modification Hell: The Horror Stories Continue.
Should the government get a failing grade for its loan modification program?

HUD Assistant Secretary Raphael Bostic and Treasury Assistant Secretary Herb Allison release figures from the third edition of the Administration's monthly scorecard on the nation's housing market. They did their best to put on a positive spin on the numbers, but it's obvious the housing market isn't showing anyone the money right now.

The housing market scorecard gives a broad context for how the current housing climate is doing with the help of the Administration's programs.

Talk about government life support for the housing industry. As of this month, these Administration's recovery efforts include:

Home buyer tax credits for first-time buyers and long-term homeowners
Mortgage loan modifications for those who can no longer afford their payments
Mortgage loan refinancing program for homeowners who can afford their payments, but are underwater with their loans
FHA engagement, making FHA loans more accessible for more home buyers
Neighborhood stabilization and community development programs
Billions of dollars to support Fannie Mae and Freddie Mac while in government conservatorship
Mortgage backed securities purchase program from the Federal Reserve that helped keep mortgage interest rates low

Bostic came under fire after making a couple of statements that seemed to indicate the housing market was reaching a place of stability and home sellers and homeowners could be hopeful about what's to come.

When asked by a journalist listening in to the conference call to quantify what data he was looking at that made him feel so optimistic, Bostic said:

"When we say stability we aren't being "Pollyanna-ish" about it, there are still problems--we recognize that there still is fragility in this market. Let's just be clear, when the administration took office, the housing market and economy were pretty much in free fall and through the course of the following 18 months that free fall was stemmed. You shouldn't misinterpret what I'm saying as that 'we're out of the woods', I'm not saying that."

(Wow. Someone is a little sensitive.)

Results of this month's housing market scorecard reflect Bostic's statements: While the government programs are helping, the housing crisis is far from over.

After 30 straight months of decline, home prices have leveled off in the past year. Although the overall housing outlook remains mixed, some regions are experiencing stabilizing housing prices. Futures indicies have shifted upward since January 2009.
7.1 million homeowners have refinanced since April 2009. Historic low rates promote affordability. When you've got lemons, make lemonade I guess; refinancing has resulted in $12.7 billion in total borrower savings.
Over 3.15 million modification arrangements were done from April 2009 through the end of June 2010. There have been more than twice as many modification arrangements begun compared to foreclosure completions for the same period (1.24 million), granted the word "begun" should be a bit of a red flag as more than half of applicants to the HAMP program dropped out. The modifications mentioned above include: More than 1.3 million trial HAMP modifications started, more than 472,000 FHA loss mitigation and early delinquency interventions, and 1.4 million proprietary modifications under HOPE Now.
More than 37,000 homeowners received a HAMP permanent modification in July. Program entry has slowed down due to upfront eligibility requirements in place since June 1. Homeowners in permanent modifications are experiencing a median payment reduction of 36 percent, or more than $500 per month.

Herb Allison explained the high numbers of cancellations in the HAMP program that were noted in the scorecard report.

"These people aren't simply being dropped from HAMP. They were either not eligible or not making the payments they are required to make or they dropped out...the reasons are all within the rules and most of these people are still getting relief," Allison said. He wasn't more specific about what kind of relief these homeowners were getting.

He also encouraged all homeowners eligible for loan modification to go get a modification.

I'm sure all of the folks who are regular readers of my Loan Modification Hell series would like very much to know if they are or are not eligible for a loan modification. It's easy to say go get a loan mod. But as we've seen, it's nearly impossible to go get one, as the good Assistant Treasury Secretary so blithely suggests.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and The Equifax Personal Finance Blog, and is Chief Content Strategist at RealtyJoin.com, a community for real estate investors.

Read More: