Obama’s Foreclosure Prevention Plan

Is Obama’s Foreclosure Prevention Plan Working?

There are new concerns being raised over the effectiveness of the 75 billion dollar effort to stave off foreclosures. The foreclosure prevention plan that the Obama administration implemented has offered long term help to a small handful of troubled homeowners.

By 9/30/09 the plan could only claim to have helped fewer than 5% of Fannie & Freddie’s “trial modifications” to convert to long term mortgages and according to the congressional oversight panel that monitors how bailout funds are being used, only 1.26% of these trials were made permanent after 3 months.

The plan puts troubled homeowners into new payment plans with an initial payment of approximately 31% of the borrowers’ current income. This is supposed to provide immediate relief while they gather all the paperwork necessary to complete a long term modification. The “long term modification” is not long term at all. What the modification does is to set the payments to the new lower payment for three to five years. After that, the payment will adjust to whatever the current interest rate is. At todays rate of about 5% this arrangement would be ideal, but the likelihood that interest rates will stay that low is not very realistic. After years of depressing the interest rates, the fed will likely have to make several hikes of the key rate, over the coming years. At the time that the adjustment happens, it will likely be too much for homeowners to bear.

Also, lenders don’t seem to be in a hurry to modify these loans under the Obama program, nor do they seem intent on converting any of the modifications into long term modifications.

“Everyone is going to be shocked at the low conversion rates from trial modifications to permanent modifications” said Guy Cecela, publisher of Inside Mortgage Finance, a trade publication. The president’s program, “won’t result in a significant number of loans being modified and won’t put a significant dent in foreclosure rates”

Some lenders blame borrowers, claiming that they have not been able to receive all required paperwork, while borrowers insist that they are getting caught up in a game where despite multiple efforts to supply lenders with documentation, lenders purposely lose paperwork or deny ever having received it.

“We’re not sure why we’re not getting the documents from people,” said Chase spokesman Tom Kelly. Of course Kelly wouldn’t furnish a response when asked how many long term modifications they had actually completed under the plan.

If lenders are really interested in converting applications into actual modifications, they are not showing it. When entering into a loan modification application, be prepared to submit paperwork multiple times and in as many different ways as possible and make sure to document every transaction, keeping time and date stamps of some sort on every piece of correspondence.

Housing Assist Coldwellbanker