Is Obama’s Mortgage Modification Program Failing?

Filed under: Personal Finance, Dr. Boyce Money

More than 1/3 of the 1.24 million borrowers who’ve enrolled in President Obama’s mortgage modification program have dropped out. The program was a $75 billion initiative to help borrowers find ways to keep their homes, but some believe that the program hasn’t helped most people who need it.

Last month, 150,000 borrowers left the program, which leads to a total of 436,000 who’ve quit since March 2009. Experts believe that many of the borrowers will end up in foreclosure, while the Obama Administration believes they will get help elsewhere.

One of the main reasons for the dropouts is that the Obama Administration forced banks to sign borrowers up without asking for proof of income. When income information was provided, the borrowers did not qualify for alternatives that were profitable to the banks. Banks are saying that some borrowers are not sending the necessary paperwork, while many borrowers are saying that the banks lost their information. Since that time, the Obama Administration has asked banks to collect two recent pay stubs at the start of the process. The borrower is then required to get their most recent tax return from the IRS.

Most of the rejections occurred during the trial period, which lasts for three months. Roughly 6,300 borrowers dropped out after their loans were modified. About 27 percent of the borrowers started the program, received loan modifications and are making payments on time. Some borrowers are making selective defaults, in which they simply refuse to continue making large payments on a home with a loan that is greater than the value of the property.

“The majority of these modifications aren’t going to be successful,” said Wayne Yamano, vice president of John Burns Real Estate Consulting. “Even after the permanent modification, you’re still looking at a very high debt burden.”

Officials from the Obama Administration argue that while some borrowers are not getting help from the program, they are getting help in other ways. The administration sent out statistical data showing that nearly half of the borrowers who fell out of the program received alternative modifications from the lenders