For months, troubled homeowners seeking to lower their mortgage payments under a federal plan have complained about bureaucratic bungling, ceaseless frustration and confusion. On Thursday, the Obama administration declared that the $75 billion program is finally providing broad relief after it pressured mortgage companies to move faster to modify more loans.
Five hundred thousand troubled homeowners have had their loan payments lowered on a trial basis under the Making Home Affordable Program, said Treasury Secretary Timothy F. Geithner in a telephone briefing with reporters. Mortgage payments are now being lowered faster than homes are being sold in foreclosure proceedings, he added, and roughly 40 percent of the 1.2 million homeowners deemed eligible have been helped.
“That’s an important shift,” Geithner said. “Half a million families are participating in loan modifications that are substantially decreasing their housing costs.”
But economists said the program was still not big enough to prevent many millions of Americans from losing their homes before the books are closed on the Great Recession and its painful aftermath.
“It’s a help on the margin,” said Mark Zandi, chief economist at Moody’s Economy.com. “But it’s not going to end the foreclosure crisis.”
By Zandi’s reckoning, from this year to next, more than 4 million households will surrender homes to foreclosure or through so-called short sales, where the property is sold for less than the bank is owed.
The half-million mortgages that have been adjusted to create lower payments for borrowers have been modified only on a trial basis. After three months of successfully making new payments — no sure thing — borrowers must then submit additional paperwork to turn the trial terms into a permanent modification, creating more room for bureaucratic stumbles.
Administration officials shed no light on what experts say is a crucial determinant of the ultimate success of the program: They said they did not know how many of the mortgage modifications had actually lowered the loan principal, as opposed to merely stretching out the life of the loan through lower payments.
Experts say homeowners whose principal balances are reduced are much less likely to fall back into delinquency. Reducing the principal is particularly important for those who are underwater, meaning they owe more than their home is worth.