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What Happened to Modifications?

Monday’s blog post generated many questions as to whether modifications would have a major impact on preventing an increase in future foreclosures. Though modifications are still being done, the onus by the government and the banks has currently shifted to two other initiatives to help the housing recovery:

  1. Preventing future delinquencies (people falling behind on their payments)
  2. Clearing the backlog of foreclosures already owned by the banks (REOs). 

As proof of this, we just need to look at the speech by Edward J. DeMarco, the Acting Director of the Federal Housing Finance Agency (FHFA), to the American Mortgage Conference.

The text of the speech was released earlier this week . Mr. DeMarco explains:

“At the end of the Bush Administration and in the early days of the Obama Administration, attention focused on loan modifications as a way of stabilizing troubled borrowers’ monthly payments and aiding them in avoiding foreclosure. These efforts resulted in the Home Affordable Modification Program, or HAMP. For much of 2009, the key priority was developing and then implementing HAMP; in late 2009 and into 2010, the challenge became making HAMP more operationally effective and converting borrowers from trial modifications to permanent modifications.”

DeMarco then talks about what initiatives the agency is now concentrating on:

“Current priorities are focused on issues at the two ends of the foreclosure process – at one end, we are enhancing efforts to keep current borrowers from going delinquent in the first place and at the other end, we are now focusing on the challenges of disposing of the real estate owned that is left after a foreclosure.” 

Preventing New Delinquencies 

Trying to prevent more American families from falling delinquent on their mortgage payments is a great first step to a recovery in the housing sector. DeMarco claims:

“FHFA is carefully reviewing the mechanics of the Home Affordable Refinance Program (HARP) program to identify possible enhancements that would reduce barriers for borrowers already otherwise eligible to refinance using HARP. If there are frictions associated with the origination of HARP loans that can be eased while still achieving the program’s intent of assisting borrowers …we will seek to do so.”

Clearing Existing Foreclosures

We must also clear the inventories of foreclosures currently held by the banks. This is seen by FHFA as a crucial component to any plan to help the real estate market recover.

“The second area I would like to briefly discuss is the disposition of Real Estate Owned or REO. In August, FHFA, Treasury, and HUD issued a Request for Information (RFI) on ways to dispose of REO properties. While the Enterprises have considered various approaches to disposing of REO over time, the RFI represents an opportunity to consider new approaches, including possible approaches that include both the Enterprises and the Federal Housing Administration (FHA). By taking this collaborative approach, the three agencies seek ways to improve returns to taxpayers and bring greater stability to local housing markets. We have received nearly 4,000 submissions in response to the RFI. We are encouraged by the strong response and interest in this effort. Obviously it will take a little time to review so many responses but we are already hard at work doing so.

To be clear, this effort is not intended to develop a single, national program for REO disposition. Rather, we are most interested in proposals tailored to the needs and economic conditions of local communities.” 

Bottom Line

To help the market, the two major initiatives FHFA is pursuing are preventing new delinquencies and selling off the backlog of foreclosures that currently exists. Modifications, at best, now appear to be on the back burner.

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5 replies
  1. Lynn
    Lynn says:

    The banks have been bailed out, what does that exactly mean? Have the banks been paid back the money that went into default? If so why are they having such a hard time giving people loan modifications? Why are these banks making loan modifications so hard to acquire. What is the ratio of people who apply for a loan modification and get them, to those who apply and do not get the loan modification? The government needs to make the banks guide lines for loan modifications more lenient so more people will be eligible. The Home Affordable Refinance should modify the banks making sure people get the loan modification they so desperately need and that will help to keep the American Dream Alive.

  2. Isaac Showell
    Isaac Showell says:

    There is a certain illogic to putting modifications on the back burner if your focus is on preventing new deliquencies. Modification should be a key component of any plan to prevent deliquencies.

  3. Deborah Brown
    Deborah Brown says:

    I said back in jan 09 just extend loans to 40 year loan products, have updated legitimate professional appraisals for these folks and modify to the current fixed rates of about 4% interest rate and 90% of the folks can stay in their homes. Very simple. Why doesnt anyone have a brain regarding halting devaluing of our nation. Do the above 3 and charge a fee for the modification process. As long as the qualifying ratios work at a 40 yr fixed rate wrap the mod fee back on the mortgaged amount, kind of like a second lien on a virginia housing authority loan and mabe charge qyarter per cent higher for loan to value. You guys have to do something. Right now you are a mess

  4. Deborah Brown
    Deborah Brown says:

    You cant lower rates anymore and you need to stop the bleeding. Use common sense. Anti govt rhetoric quoting Reagon is a naive sound bite to dumb down the masses in order for wall street’s Reagan to carry on biz as usual without checks and balances and hands off lack regulation. Cant you see the crooks are at work with this free market anti govt rhetoric? We do need govt AND biz but a new Wharton school common sence balance. Its nit all black and white its shades of grey. Our govt and biz and politicians need to get cracking we r decling rapidly.


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