A Long Cry For Help

PERSONAL FINANCE

Demand Creates Months-long Delays For A $75 Billion Federal Program Designed To Help A Half-million Americans Keep Their Homes By Restructuring Their Mortgages

August 30, 2009|By EILEEN AMBROSE

If you want to take advantage of a new federal program to modify your mortgage so you can afford to stay in your house, be prepared to wait. And wait. The $75 billion Home Affordable Modification Program has gotten off to a slow start since its March launch, and Maryland housing counselors say mortgage servicers seem understaffed and overwhelmed by the demand for modifications while borrowers are sometimes waiting several months to get relief.

And that demand is likely not to abate any time soon with a record one in eight Marylanders behind on their mortgages as of this spring.

"The tragedy is that it took so darn long to get this standardized program up and running," says Barry Zigas, director of housing policy for the Consumer Federation of America. "Many homeowners have already lost their homes. Many are so far underwater that this might not help them in the long run."

The federal program offers cash incentives to mortgage servicers, lenders and investors in exchange for changing the terms of borrowers' mortgages so the monthly payments are affordable. The government estimates that among those eligible for the program, 2.7 million are at least 60 days behind on their mortgages. As of the end of July, 235,247 borrowers started trial modifications where they must make on-time payments for three or so months before graduating to a permanent modification. Another 171,295 have trial offers pending.

The Obama administration has pressed mortgage servicers to speed up modifications. It asked them last month to hire more staff and it set a target of 500,000 trial modifications by Nov. 1. And the government is now publishing each month a list of servicers and the number of modifications they have done.

Josh Denney, a lobbyist for the Mortgage Bankers Association, advises not to give too much weight to these early modification numbers. It took months for servicers to get the details of the program and to implement it, he says. And servicers have been increasing staff and training workers to handle modifications.

Thirty-eight servicers that handle about 85 percent of all mortgages have signed onto the program that runs through 2012.

"The industry is on track to hit 500,000 trial modifications by Nov. 1," Denney says.

The program is designed for consumers who have suffered a financial hardship and would be able to stay in their home if their mortgage payment was lowered to 31 percent of gross monthly income. This is done by first reducing the loan's interest rate for at least five years, then extending the term to up to 40 years and, lastly, by forgiving principal.

For their part, mortgage servicers get $1,000 for each modified loan, and an extra $1,000 annually for three years if borrowers stick with the program. The government shares the cost of modifying loans with investors or lenders that stand to lose income when mortgage terms change.

Even borrowers can earn cash incentives. Their principal can be reduced as much as $5,000 if they keep up with payments for five years.

But the program is nowhere near that point yet.

Housing counselors say some modifications are being done, but the process is slower than they had hoped at the start.

"Everyone had hopes. Some have been realized; others not," says Lisa Evans, deputy director of St. Ambrose Housing Aid Center in Baltimore. "It has taken time for the servicers to ramp up. I don't think they are there yet."

"People are waiting months and months," says Joe Cox, program director for Maryland ACORN. The nonprofit advises clients not to expect to hear from a servicer for at least 45 days after submitting an application, and a modification may take two to three months. "And those are the good servicers," he says.

Homeowners deepest in arrears seem to get modifications soonest, says Jim Godfrey, president of Consumer Credit Counseling Service of Maryland and Delaware, adding that modifications can take two weeks to five months. "They almost don't want to talk to you if you are current," he says.

And there are other problems.

"We still struggle with lost packages," Evans says. Housing counselors fax or e-mail modification documents to a servicer, only to find out a week or two later that the servicer has no trace of the paperwork. "There have been packages that have gone out four or five times," Evans says.

Documents also can sit with a servicer for months and by the time the application is considered, the borrower must submit updated paperwork to verify income again, Evans says.

So far, about 10 percent of the applications submitted by St. Ambrose have been reviewed and approved for a modification. Typically, the interest rate is cut to 2 percent or 3 percent and the loan term is extended to its original 30 years, Evans says. Less frequently, the mortgage term is extended to 40 years. "Nobody is seeing principal reduction," she says.

Some counselors, though, understand what servicers are going through.

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