The ObamaTapDance dances on -- U.S. Loan Effort Is Seen as Adding to Housing Woes
C.Tudor
The ObamaTapDance dances on.
------
http://www.nytimes.com/2010/01/02/business/economy/02modify.html?th&emc=th
NY Times
January 2, 2010
U.S. Loan Effort Is Seen as Adding to Housing Woes
By PETER S. GOODMAN
The Obama administration�s $75 billion program to protect homeowners
from foreclosure has been widely pronounced a disappointment, and some
economists and real estate experts now contend it has done more harm
than good.
Since President Obama announced the program in February, it has lowered
mortgage payments on a trial basis for hundreds of thousands of people
but has largely failed to provide permanent relief. Critics increasingly
argue that the program, Making Home Affordable, has raised false hopes
among people who simply cannot afford their homes.
As a result, desperate homeowners have sent payments to banks in
often-futile efforts to keep their homes, which some see as wasting
dollars they could have saved in preparation for moving to cheaper
rental residences. Some borrowers have seen their credit tarnished while
falsely assuming that loan modifications involved no negative reports to
credit agencies.
Some experts argue the program has impeded economic recovery by delaying
a wrenching yet cleansing process through which borrowers give up
unaffordable homes and banks fully reckon with their disastrous bets on
real estate, enabling money to flow more freely through the financial
system.
�The choice we appear to be making is trying to modify our way out of
this, which has the effect of lengthening the crisis,� said Kevin
Katari, managing member of Watershed Asset Management, a San
Francisco-based hedge fund. �We have simply slowed the foreclosure
pipeline, with people staying in houses they are ultimately not going to
be able to afford anyway.�
Mr. Katari contends that banks have been using temporary loan
modifications under the Obama plan as justification to avoid an honest
accounting of the mortgage losses still on their books. Only after banks
are forced to acknowledge losses and the real estate market absorbs a
now pent-up surge of foreclosed properties will housing prices drop to
levels at which enough Americans can afford to buy, he argues.
�Then the carpenters can go back to work,� Mr. Katari said. �The roofers
can go back to work, and we start building housing again. If this drips
out over the next few years, that whole sector of the economy isn�t
going to recover.�
The Treasury Department publicly maintains that its program is on track.
�The program is meeting its intended goal of providing immediate relief
to homeowners across the country,� a department spokeswoman, Meg Reilly,
wrote in an e-mail message.
But behind the scenes, Treasury officials appear to have concluded that
growing numbers of delinquent borrowers simply lack enough income to
afford their homes and must be eased out.
In late November, with scant public disclosure, the Treasury Department
started the Foreclosure Alternatives Program, through which it will
encourage arrangements that result in distressed borrowers surrendering
their homes. The program will pay incentives to mortgage companies that
allow homeowners to sell properties for less than they owe on their
mortgages � short sales, in real estate parlance. The government will
also pay incentives to mortgage companies that allow delinquent
borrowers to hand over their deeds in lieu of foreclosing.
Ms. Reilly, the Treasury spokeswoman, said the foreclosure alternatives
program did not represent a new policy. �We have said from the start
that modifications will not be the solution for all homeowners and will
not solve the housing crisis alone,� Ms. Reilly said by e-mail. �This
has always been a multi-pronged effort.�
Whatever the merits of its plans, the administration has clearly failed
to reverse the foreclosure crisis.
In 2008, more than 1.7 million homes were �lost� through foreclosures,
short sales or deeds in lieu of foreclosure, according to Moody�s
Economy.com. Last year, more than two million homes were lost, and
Economy.com expects that this year�s number will swell to 2.4 million.
�I don�t think there�s any way for Treasury to tweak their plan, or to
cajole, pressure or entice servicers to do more to address the crisis,�
said Mark Zandi, chief economist at Moody�s Economy.com. �For some
folks, it is doing more harm than good, because ultimately, at the end
of the day, they are going back into the foreclosure morass.�
Mr. Zandi argues that the administration needs a new initiative that
attacks a primary source of foreclosures: the roughly 15 million
American homeowners who are underwater, meaning they owe the bank more
than their home is worth.
Increasingly, such borrowers are inclined to walk away and accept
foreclosure, rather than continuing to make payments on properties in
which they own no equity. A paper by researchers at the Amherst
Securities Group suggests that being underwater �is a far more important
predictor of defaults than unemployment.�
From its inception, the Obama plan has drawn criticism for failing to
compel banks to write down the size of outstanding mortgage balances,
which would restore equity for underwater borrowers, giving them greater
incentive to make payments. A vast majority of modifications merely
decrease monthly payments by lowering the interest rate.
Mr. Zandi proposes that the Treasury Department push banks to write down
some loan balances by reimbursing the companies for their losses. He
pointedly rejects the notion that government ought to get out of the way
and let foreclosures work their way through the market, saying that
course risks a surge of foreclosures and declining house prices that
could pull the economy back into recession.
�We want to overwhelm this problem,� he said. �If we do go back into
recession, it will be very difficult to get out.�
Under the current program, the government provides cash incentives to
mortgage companies that lower monthly payments for borrowers facing
hardships. The Treasury Department set a goal of three to four million
permanent loan modifications by 2012.
�That�s overly optimistic at this stage,� said Richard H. Neiman, the
superintendent of banks for New York State and an appointee to the
Congressional Oversight Panel, a body created to keep tabs on taxpayer
bailout funds. �There�s a great deal of frustration and disappointment.�
As of mid-December, some 759,000 homeowners had received loan
modifications on a trial basis typically lasting three to five months.
But only about 31,000 had received permanent modifications � a step that
requires borrowers to make timely trial payments and submit paperwork
verifying their financial situation.
The government has pressured mortgage companies to move faster. Still,
it argues that trial modifications are themselves a considerable help.
�Almost three-quarters of a million Americans now are benefiting from
modification programs that reduce their monthly payments dramatically,
on average $550 a month,� Treasury Secretary Timothy F. Geithner said
last month at a hearing before the Congressional Oversight Panel. �That
is a meaningful amount of support.�
But mortgage experts and lawyers who represent borrowers facing
foreclosure argue that recipients of trial loan modifications often wind
up worse off.
In Lakeland, Fla., Jaimie S. Smith, 29, called her mortgage company,
then Washington Mutual, in October 2008, when she realized she would get
a smaller bonus from her employer, a furniture company, threatening her
ability to continue the $1,250 monthly mortgage payments on her
three-bedroom house.
In April, Chase, which had taken over Washington Mutual, lowered her
payment to $1,033.62 in a trial that was supposed to last three months.
Ms. Smith made all three payments on time and submitted required
documents, Chase confirms. She called the bank almost weekly to inquire
about a permanent loan modification. Each time, she says, Chase told her
to continue making trial payments and await word on a permanent
modification.
Then, in October, a startling legal notice arrived in the mail: Chase
had foreclosed on her house and sold it at auction for $100. (The
purchaser? Chase.)
�I cried,� she said. �I was hysterical. I bawled my eyes out.�
Later that week came another letter from Chase: �Congratulations on
qualifying for a Making Home Affordable loan modification!�
When Ms. Smith frantically called the bank to try to overturn the sale,
she was told that the house was no longer hers. Chase would not tell her
how long she could remain there, she says. She feared the sheriff would
show up at her door with eviction papers, or that she would return home
to find her belongings piled on the curb. So Ms. Smith anxiously set
about looking for a new place to live.
She had been planning to continue an online graduate school program in
supply chain management, and she had about $4,000 in borrowed funds to
pay tuition. She scrapped her studies and used the money to pay the
security deposit and first month�s rent on an apartment.
Later, she hired a lawyer, who is seeking compensation from Chase. A
judge later vacated the sale. Chase is still offering to make her loan
modification permanent, but Ms. Smith has already moved out and is
conflicted about what to do.
�I could have just walked away,� said Ms. Smith. �If they had said, �We
can�t work with you,� I�d have said: �What are my options? Short sale?�
None of this would have happened. God knows, I never would have wanted
to go through this. I�d still be in grad school. I would not have paid
all that money to them. I could have saved that money.�
A Chase spokeswoman, Christine Holevas, confirmed that the bank
mistakenly foreclosed on Ms. Smith�s house and sold it at the same time
it was extending the loan modification offer.
�There was a systems glitch,� Ms. Holevas said. �We are sorry that an
error happened. We�re trying very hard to do what we can to keep folks
in their homes. We are dealing with many, many individuals.�
Many borrowers complain they were told by mortgage companies their
credit would not be damaged by accepting a loan modification, only to
discover otherwise.
In a telephone conference with reporters, Jack Schakett, Bank of
America�s credit loss mitigation executive, confirmed that even
borrowers who were current before agreeing to loan modifications and who
then made timely payments were reported to credit rating agencies as
making only partial payments.
The biggest source of concern remains the growing numbers of underwater
borrowers � now about one-third of all American homeowners with
mortgages, according to Economy.com. The Obama administration clearly
grasped the threat as it created its program, yet opted not to focus on
writing down loan balances.
�This is a conscious choice we made, not to start with principal
reduction,� Mr. Geithner told the Congressional Oversight Panel. �We
thought it would be dramatically more expensive for the American
taxpayer, harder to justify, create much greater risk of unfairness.�
Mr. Geithner�s explanation did not satisfy the panel�s chairwoman,
Elizabeth Warren.
�Are we creating a program in which we�re talking about potentially
spending $75 billion to try to modify people into mortgages that will
reduce the number of foreclosures in the short term, but just kick the
can down the road?� she asked, raising the prospect �that we�ll be
looking at an economy with elevated mortgage foreclosures not just for a
year or two, but for many years. How do you deal with that problem, Mr.
Secretary?�
A good question, Mr. Geithner conceded.
�What to do about it,� he said. �That�s a hard thing.�
R. Dean
> U.S. Loan Effort Is Seen as Adding to Housing Woes
>
> The ObamaTapDance dances on.
>
> ------
> http://www.nytimes.com/2010/01/02/business/economy/02modify.html?th&emc=th
>
> NY Times
> January 2, 2010
>
> U.S. Loan Effort Is Seen as Adding to Housing Woes
> By PETER S. GOODMAN
>
> from foreclosure has been widely pronounced a disappointment, and some
> economists and real estate experts now contend it has done more harm
> than good.
>
> Since President Obama announced the program in February, it has lowered
> mortgage payments on a trial basis for hundreds of thousands of people
> but has largely failed to provide permanent relief. Critics increasingly
> argue that the program, Making Home Affordable, has raised false hopes
> among people who simply cannot afford their homes.
>
> As a result, desperate homeowners have sent payments to banks in
> often-futile efforts to keep their homes, which some see as wasting
> dollars they could have saved in preparation for moving to cheaper
> rental residences. Some borrowers have seen their credit tarnished while
> falsely assuming that loan modifications involved no negative reports to
> credit agencies.
>
> Some experts argue the program has impeded economic recovery by delaying
> a wrenching yet cleansing process through which borrowers give up
> unaffordable homes and banks fully reckon with their disastrous bets on
> real estate, enabling money to flow more freely through the financial
> system.
>
> this, which has the effect of lengthening the crisis,” said Kevin
> Katari, managing member of Watershed Asset Management, a San
> pipeline, with people staying in houses they are ultimately not going to
>
> Mr. Katari contends that banks have been using temporary loan
> modifications under the Obama plan as justification to avoid an honest
> accounting of the mortgage losses still on their books. Only after banks
> are forced to acknowledge losses and the real estate market absorbs a
> now pent-up surge of foreclosed properties will housing prices drop to
> levels at which enough Americans can afford to buy, he argues.
>
> can go back to work, and we start building housing again. If this drips
> going to recover.”
>
> The Treasury Department publicly maintains that its program is on track.
> to homeowners across the country,” a department spokeswoman, Meg Reilly,
> wrote in an e-mail message.
>
> But behind the scenes, Treasury officials appear to have concluded that
> growing numbers of delinquent borrowers simply lack enough income to
> afford their homes and must be eased out.
>
> In late November, with scant public disclosure, the Treasury Department
> started the Foreclosure Alternatives Program, through which it will
> encourage arrangements that result in distressed borrowers surrendering
> their homes. The program will pay incentives to mortgage companies that
> allow homeowners to sell properties for less than they owe on their
> also pay incentives to mortgage companies that allow delinquent
> borrowers to hand over their deeds in lieu of foreclosing.
>
> Ms. Reilly, the Treasury spokeswoman, said the foreclosure alternatives
> that modifications will not be the solution for all homeowners and will
> has always been a multi-pronged effort.”
>
> Whatever the merits of its plans, the administration has clearly failed
> to reverse the foreclosure crisis.
>
> short sales or deeds in lieu of foreclosure, according to Moody’s
> Economy.com. Last year, more than two million homes were lost, and
>
> “I don’t think there’s any way for Treasury to tweak their plan, or to
> cajole, pressure or entice servicers to do more to address the crisis,”
> said Mark Zandi, chief economist at Moody’s Economy.com. “For some
> folks, it is doing more harm than good, because ultimately, at the end
>
> Mr. Zandi argues that the administration needs a new initiative that
> attacks a primary source of foreclosures: the roughly 15 million
> American homeowners who are underwater, meaning they owe the bank more
> than their home is worth.
>
> Increasingly, such borrowers are inclined to walk away and accept
> foreclosure, rather than continuing to make payments on properties in
> which they own no equity. A paper by researchers at the Amherst
> predictor of defaults than unemployment.”
>
> From its inception, the Obama plan has drawn criticism for failing to
> compel banks to write down the size of outstanding mortgage balances,
> which would restore equity for underwater borrowers, giving them greater
> incentive to make payments. A vast majority of modifications merely
> decrease monthly payments by lowering the interest rate.
>
> Mr. Zandi proposes that the Treasury Department push banks to write down
> some loan balances by reimbursing the companies for their losses. He
> pointedly rejects the notion that government ought to get out of the way
> and let foreclosures work their way through the market, saying that
> course risks a surge of foreclosures and declining house prices that
> could pull the economy back into recession.
>
> recession, it will be very difficult to get out.”
>
> Under the current program, the government provides cash incentives to
> mortgage companies that lower monthly payments for borrowers facing
> hardships. The Treasury Department set a goal of three to four million
> permanent loan modifications by 2012.
>
> superintendent of banks for New York State and an appointee to the
> Congressional Oversight Panel, a body created to keep tabs on taxpayer
>
> As of mid-December, some 759,000 homeowners had received loan
> modifications on a trial basis typically lasting three to five months.
> requires borrowers to make timely trial payments and submit paperwork
> verifying their financial situation.
>
> The government has pressured mortgage companies to move faster. Still,
> it argues that trial modifications are themselves a considerable help.
>
> modification programs that reduce their monthly payments dramatically,
> last month at a hearing before the Congressional Oversight Panel. “That
> is a meaningful amount of support.”
>
> But mortgage experts and lawyers who represent borrowers facing
> foreclosure argue that recipients of trial loan modifications often wind
> up worse off.
>
> In Lakeland, Fla., Jaimie S. Smith, 29, called her mortgage company,
> then Washington Mutual, in October 2008, when she realized she would get
> a smaller bonus from her employer, a furniture company, threatening her
> ability to continue the $1,250 monthly mortgage payments on her
> three-bedroom house.
>
> In April, Chase, which had taken over Washington Mutual, lowered her
> payment to $1,033.62 in a trial that was supposed to last three months.
>
> Ms. Smith made all three payments on time and submitted required
> documents, Chase confirms. She called the bank almost weekly to inquire
> about a permanent loan modification. Each time, she says, Chase told her
> to continue making trial payments and await word on a permanent
> modification.
>
> Then, in October, a startling legal notice arrived in the mail: Chase
> had foreclosed on her house and sold it at auction for $100. (The
> purchaser? Chase.)
>
>
> Later that week came another letter from Chase: “Congratulations on
> qualifying for a Making Home Affordable loan modification!”
>
> When Ms. Smith frantically called the bank to try to overturn the sale,
> she was told that the house was no longer hers. Chase would not tell her
> how long she could remain there, she says. She feared the sheriff would
> show up at her door with eviction papers, or that she would return home
> to find her belongings piled on the curb. So Ms. Smith anxiously set
> about looking for a new place to live.
>
> She had been planning to continue an online graduate school program in
> supply chain management, and she had about $4,000 in borrowed funds to
> pay tuition. She scrapped her studies and used the money to pay the
>
> Later, she hired a lawyer, who is seeking compensation from Chase. A
> judge later vacated the sale. Chase is still offering to make her loan
> modification permanent, but Ms. Smith has already moved out and is
> conflicted about what to do.
>
> can’t work with you,’ I’d have said: ‘What are my options? Short sale?’
> None of this would have happened. God knows, I never would have wanted
> all that money to them. I could have saved that money.”
>
> A Chase spokeswoman, Christine Holevas, confirmed that the bank
> it was extending the loan modification offer.
>
> error happened. We’re trying very hard to do what we can to keep folks
> in their homes. We are dealing with many, many individuals.”
>
> Many borrowers complain they were told by mortgage companies their
> credit would not be damaged by accepting a loan modification, only to
> discover otherwise.
>
> In a telephone conference with reporters, Jack Schakett, Bank of
> borrowers who were current before agreeing to loan modifications and who
> then made timely payments were reported to credit rating agencies as
> making only partial payments.
>
> The biggest source of concern remains the growing numbers of underwater
> mortgages, according to Economy.com. The Obama administration clearly
> grasped the threat as it created its program, yet opted not to focus on
> writing down loan balances.
>
> reduction,” Mr. Geithner told the Congressional Oversight Panel. “We
> thought it would be dramatically more expensive for the American
>
> Mr. Geithner’s explanation did not satisfy the panel’s chairwoman,
> Elizabeth Warren.
>
> “Are we creating a program in which we’re talking about potentially
> spending $75 billion to try to modify people into mortgages that will
> reduce the number of foreclosures in the short term, but just kick the
> looking at an economy with elevated mortgage foreclosures not just for a
> year or two, but for many years. How do you deal with that problem, Mr.
>
> A good question, Mr. Geithner conceded.
>
>
Lets hope Obama is a one term president.