A history of foreclosure prevention: lots of programs, little success

Thursday, July 21st, 2011 

Since the foreclosure crisis hit, the federal government has launched program after program to help homeowners. But the number of foreclosures, delinquencies, vacancies and lives destroyed continues to mount.

“Every possible strategy will lead to winners and losers,” says Alyssa Katz, author of “Our Lot,” a recent book on homeownership in America. “And bankers have better lobbyists than homeowners.”

What follows is a list of programs that have been tried so far and have mostly been ineffective.

HOPE NOW

President Bush
Introduced: Oct. 10, 2007

The HOPE NOW Alliance is a voluntary partnership among housing counselors, mortgage companies, investors and other mortgage industry stakeholders. The alliance was formed at the behest of the Bush Administration, following a series of meetings between administration officials, community groups and industry executives.

The program’s main activity is to provide a toll-free number for distressed homeowners, which they can call to pursue a loan modification or repayment plan. The program also engages in outreach to homeowners through events and mailings.

“There was an effort to appear to do something, with quick recognition that these efforts wouldn’t do anything,” says Dan Immergluck, a professor at the Georgia Institute of Technology and author of “Foreclosed,” a recent book on the mortgage crisis.

The alliance was formed “to create the appearance of strong action in the face of Sen. (Richard) Durbin’s bankruptcy cram-down bill,” Immergluck said. The Illinois Democrat’s bill would have allowed underwater homeowners to pursue a reduction of their loan balance in bankruptcy court. The legislation was vehemently opposed by many in the industry, including alliance participants. The bill ultimately failed.

“HOPE NOW was ‘Do whatever you want and call it a loan modification,’ ” Immergluck said. The program’s loan modification guidelines are strict, and take a case-by-case approach rather than attempting a broader resolution to the millions of troubled loans.  “HOPE NOW has done more modifications than HAMP (see below), but most HOPE NOW modifications were forbearances, which are standard industry practice.” Forbearance means that the borrower still owes every penny outstanding, but he or she has a little more time to pay it back.

Price Tag: Unclear. Most of the funding for program comes from the private groups and companies in the alliance.

National Foreclosure Mitigation Counseling Program

Presidents Bush, Obama
Introduced: December 2007

Perhaps one of the brighter spots in the effort to help homeowners has been the National Foreclosure Mitigation Counseling Program.  As a response to the burgeoning foreclosure crisis, Congress appropriated $180 million in December 2007 to NeighborWorks America for counseling distressed homeowners.  Appropriations for the program have been renewed each year since then, and additional funding was allocated through the Housing and Economic Recovery Act of 2008. The program provides funds to community organizations for both counseling and training of housing counselors.  

Price Tag: $540 million.

Neighborhood Stabilization Program

Presidents Bush, Obama
Introduced: 2008

The Neighborhood Stabilization Program gives grants to help communities shore up home prices and stave off property abandonment. The funding goes to state and local governments, and nonprofits — not directly to homeowners. It is administered by the Department of Housing and Urban Development as part of the Community Development Block Grant program.

Grantees funded by the program can use the money to buy, rehabilitate and re-sell foreclosed and abandoned homes. They can also use the grants to establish land banks, redevelop vacant properties and demolish condemned structures. However they use the money, the goal of the project must be to provide housing and help to low-income individuals or families.

The stabilization program has received both criticism and praise. Rehabbing vacant properties increases the home value, it can raise property tax revenue and boost city budgets. Critics charge that development backed by the program can bring about quick changes to neighborhoods, triggering displacement and gentrification.  And the program’s focus isn’t on keeping troubled borrowers in their homes, which some see as a failing.

The program was launched during the Bush years, despite opposition from the administration. The Treasury Department’s $800 billion Troubled Asset Relief Program (TARP) included $3.2 billion. Another $1.93 billion was added in the Obama administration’s stimulus package and $1 billion was tucked in to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Price tag: $7 billion allocated; $3 billion spent as of July 2011.

Home Affordable Modification Program

President Obama
Introduced: March 2009

HAMP was the marquee program of the Obama administration’s effort to help homeowners. It was meant to stop foreclosures by modifying loans to lower mortgage payments. To be eligible, a borrower must be delinquent on his or her mortgage or face imminent risk of default; must occupy the property as primary resident; and the mortgage must have been originated on or before Jan. 1, 2009. And a borrower can’t owe more than the very specific sum of $729,750 for a one-unit property. Once the borrower has been approved for the program by the lender, the loan servicer is supposed to lower the monthly mortgage payments to 31 percent of a borrower’s total pretax monthly income. Generally, that happens by reducing the interest rate or extending the loan terms. Servicers can also choose to forgive principal — reducing the total amount owed — before any other steps, to get to the target monthly mortgage payment. That’s rare.

The program was recently tweaked to give a little extra help to unemployed homeowners. Under the old guidelines, servicers had to give people a minimum of three months’ forbearance on their payments, meaning that the borrower could hold off on making payments for 90 days. Now, that three-month period has been extended to a full year, the idea being that maybe in 12 months, people can get back on their feet. Given the looming possibility of a second recession, that might be an optimistic assumption.

HAMP has been widely criticized for its underwhelming efforts to assist struggling homeowners. There are no hard rules for mortgage servicers, and they are not obliged to honor programs they signed into.

Price tag: While backed by $30 billion in funding with the goal of assisting 4 million homeowners, it has spent only $1.6 billion and has started 730,000 permanent modifications, as of May 31, 2011.

Hardest Hit Fund

President Obama
Introduced: February 2010

The Hardest Hit Fund is a program designed to shore up people living in areas hit hardest by the economic and housing crises. The money goes to state housing finance agencies, which then distribute the cash to local groups and governments. To qualify for funding, states must have an unemployment rate equal to or above the national average. They also qualify if home prices have dropped more than 20 percent since the foreclosure crisis began.

State housing finance agencies submit proposals to the Treasury Department under loose guidelines recommended by the Hardest Hit Fund. They can use the funds to address the specific needs of their communities — to help prevent foreclosure and stabilize the housing market. The strategies supported by the fund include unemployment programs, mortgage modifications, assistance in short sales or deed-in-lieu of foreclosure, principal reduction for borrowers with negative equity and second-lien reductions.

Price tag: As of August 2010, a total of $7.6 billion has been allocated to the program. So far, $6.8 million has been spent. Funds are available for participating state housing finance agencies through 2017.

Emergency Homeowners’  Loan Program

President Obama
Introduced: June 2011

On June 20, the Department of Housing and Urban Development (HUD) announced a new foreclosure-aid program: the Emergency Homeowners’ Loan Program. Implemented by HUD as a condition of the Dodd-Frank Wall Street Reform and Consumer Protection Act, $1 billion in aid is tailored to provide homeowners with mortgage-payment relief — a one-time, zero-interest, forgivable bridge loan. The loan’s aim is to help borrowers catch up with mortgage payments within a two-year period, or until a maximum of $50,000 has been loaned. No payments are due on the bridge loan for five years, as long as the borrower stays current.

To be eligible, homeowners must be suffering from either a 15 percent drop in income due to involuntary unemployment or underemployment that can be attributed to economic conditions, or a medical emergency, or both. That’s not all. They also must be delinquent in mortgage payments by at least three months, their income must not exceed $75,000 or 120 percent of the area median income and their monthly mortgage payment has to be more than 31 percent of their monthly income. Still not all: They must have received a notice of intent to foreclose, and they have to be able to resume mortgage payments when re-entering the workforce.

The program will help borrowers in 32 states and Puerto Rico that do not receive funding from the Hardest Hit Fund. Homeowners have a short deadline, until July 22, to get pre-screened for the loan.

Price tag: $1 billion allocated; $3.2 million drawn from HUD as of July 2011.

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