August 2010 Archives

August 27, 2010

Why Hasn't the Make Home Affordable Program Worked?

In my previous blog, I talked about how the Making Home Affordable programs have not been particularly successful in keeping families in their homes, especially given the amount of money thrown at the problem. (See More Money for Foreclosure Prevention: Will It Help?) So this brings me to the next inquiry: Why haven't these programs worked?
There are three overarching reasons why the Making Home Affordable program has failed in its primary mission, which is to keep people in their homes.
  • First, the program has erroneously depended on the good faith of the American mortgage lending industry, a mistaken approach for many lenders.
  • Second, many people facing foreclosure lack an income stream to support even a radical modification.
  • Third, even if good faith among the banking industry was widespread and unemployment wasn't so high, the Making Home Affordable program was still doomed to fail because of the sheer number of people applying for modifications. As a whole, the banking bureaucracy has not been up to the task of processing this flood of modification requests, which has resulted in many applicants giving up out of disgust and despair. 


August 25, 2010

More Money for Foreclosure Prevention: Will It Help?

A recent announcement by the Obama administration provides an additional two billion dollars worth of foreclosure prevention assistance in seventeen of the hardest hit states. This is on top of 1.5 billion dollars allocated earlier in the year for the five hardest hit states. And HUD will kick in one billion dollars for foreclosure prevention efforts in the additional states. The   programs target unemployed homeowners and will implement by the states to fund locally originated foreclosure-prevention programs. These programs typically help homeowners reduce their principal mortgage, deal with second mortgages, and, where appropriate, facilitate short sales and deeds in lieu of foreclosure by providing assistance to move or find rental housing.
But will the additional money and new programs help? It's not likely.
For starters, two billion dollars (or 3 or 4  billion) doesn't seem like an overwhelming number given the many billions of dollars that have already been spent in mostly fruitless efforts to halt the foreclosure epidemic. Of course those who successfully get help to stay in their homes will benefit, which has been the thinking all along for the basic Making Home Affordable programs. However, the Making Home Affordable programs have been in place for well over a year, and have only resulted in several hundred thousand mortgage payment modifications (and far fewer refinancings) out of the seven to eight million foreclosure filings on record. And even where modifications have occurred, the homeowner has defaulted anew in more cases than not. Simply put, the Making Home Affordable program has failed to make homes affordable for most of the people who have tried to benefit from its provisions, and there is no reason to think these new programs will be any different.
Next up: Why haven't the Making Home Affordable programs worked?