Obama's Foreclosure Program Speeds Up Rescue Efforts -- Really!

More foreclosures are coming! That's the warning we've been getting for months from pundits and economists.

The primary culprit? Big government intervention, according to these commentators. Federal foreclosure programs have slowed the foreclosure process without necessarily stopping it. That's created a huge pileup of homes on the road to foreclosure that haven't gotten there yet.

"Loan modifications... may simply have delayed the inevitable," according to an analysis back in February from Standard & Poor's.

Well, put on your seat belts. For hundreds of thousands of borrowers who faced foreclosure, the delays are over.
In April, banks canceled more than 100,000 temporary modifications to home loans made through the Home Affordable Modification Program (HAMP), the biggest federal foreclosure prevention initiative. That makes a total of 278,000 borrowers who once had temporary modifications to their home loans but who have since left or been thrown out of the program, according to the latest report from the Treasury department and HUD. Many of these borrowers are likely to lose their homes, if they haven't already.

However, not all the news is bad. At the same time, hundreds of thousands more borrowers found happy endings to their mortgage problems through the Obama Administration program -- at least for now. More than 295,000 borrowers received permanent modifications to their loans through HAMP by the end of April. They now are making their new reduced mortgage payments, which will last at least five years. That's 295,000 people who were on the brink of foreclosure who now have a much better chance of keeping their homes.

So the HAMP program is batting about .500. More than a half-million people have now gone through the HAMP trial modification process -- split about evenly between people who received permanent loan modifications and those who were thrown out of the program.

But here's the important news for the housing market: After more than a year of delays, the program is moving.

As last year came to a close, the program seemed incapable of helping anyone. Close to a million borrowers had received temporary HAMP modifications of their mortgages through the program, but only a few thousand had those modifications become permanent.

The rest hung in limbo. Many banks seem determined to drive homeowners out of the HAMP program and into foreclosure.

For a few hundred examples, browse through the comments to a HousingWatch story from earlier this year. Readers shared their personal horror stories about dealing with banks like JPMorgan Chase that seemed willing to do anything to avoid giving borrowers permanent loan modifications: sending borrowers constant requests for more information, "losing" paperwork that borrowers had faxed or sent via FedEx, and putting homes into foreclosure without properly informing residents who have applied for loan modifications.

"I just fight another day every day with Chase," said one commenter named Linda.

The more than 500,000 borrowers who reached the HAMP finish line have cut deeply into HAMP's backlog of loans. The number of people with active temporary HAMP modifications dropped to 637,000 at the end April. That's down from a backlog of close to a million at the beginning of the year.

As more of these borrowers reach the HAMP finish line, for better or worse, that will represent the resolution of a threat that has hung over the head of the housing markets for the last year. This resolution, sometimes painful, sometimes positive, is expected to keep foreclosure rates at roughly their current high level throughout the year, according to James J. Saccacio, chief executive officer of foreclosure research firm RealtyTrac, "as lenders systematically work through the backlog of distressed properties."
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