Houses Repossession Prevention Perceived As Adding to Crisis
The houses repossession prevention program of the Obama administration is now being seen by some housing and community advocates as worsening the housing crisis instead of solving it.
Critics claim that the Home Affordable Modification Program has given false hopes to record numbers of homeowners who participated in the program and who spent their last money on making their monthly payments instead of saving them for their move to cheaper rental units. A lot of borrowers also thought that their credit records would not be tarnished by their loan modification efforts.
Analysts including Kevin Katari of Watershed Asset Management contended that the federal loan modification program has delayed economic recovery because it prevented homeowners from finally accepting that they could not afford the homes they purchased and prevented banks from making complete and true accounting of their losses from home loans.
Katari further argued that without the loan modification program, which has largely failed because most of the trial modifications were not made permanent, the needed cleansing process could have proceeded quickly. This cleansing process could have forced banks to recognize their losses early and completely and could have forced defaulting homeowners to move on to housing units that they can really afford or to live with relatives while they recover.
Under the current houses repossession prevention program, the Treasury Department planned to modify 3 to 4 million mortgages permanently by 2012. But as of December last year, only around 759,000 loans were put into trial modifications of 3 to 5 months and only around 31,000 of these loans were moved to permanent modification status.
Government officials and lawmakers have pressured mortgage lenders to step up their loan modification efforts, especially those which have received bailout money from the government. But housing advocates and homeowners are still complaining that the government is not doing enough and that lenders are not entertaining their requests.
In response to critics, Treasury Secretary Timothy Geithner explained that the federal loan modification program has lowered monthly home loan payments for nearly 750,000 American homeowners by an average of $550 per month. He added that even if some of the modifications were temporary, they were meaningful and significant to distressed homeowners.
However, mortgage specialists and real estate lawyers argued that homeowners who participated in the houses repossession prevention program often turn out in situations worse than before their loan modifications as their lenders end their trial modifications quickly and make immediate demands for higher payments or continue their foreclosure proceedings.
