WASHINGTON (AP) - The Obama administration's flagship effort to help people in
danger of losing their homes is falling flat.
More than a third of the 1.24 million borrowers who have
enrolled in the $75 billion mortgage modification program have
dropped out. That's more than the 27 percent who have managed to
have their loan payments reduced to help them keep their homes.
Last month alone, 150,000 borrowers left the program -- bringing
the total to 436,000 who have exited since it began in March
Administration officials say borrowers will get help in other
ways. But analysts fear the majority will still wind up in
A major reason so many have fallen out of the program is the
Obama administration initially pressured banks to sign up borrowers
without insisting first on proof of their income. When banks later
moved to collect the information, many troubled homeowners were
disqualified or dropped out.
Many borrowers complained that the banks lost their documents
The industry said borrowers weren't sending back the
Treasury officials have directed lenders to shift to a new
system. They are now required to collect two recent pay stubs at
the start of the process. Borrowers have to give the Internal
Revenue Service permission to provide their most recent tax returns
The growing number of people leaving the program could lead to a
new wave of foreclosures. If that happens, it could weaken the
housing market and hold back the broader economic recovery.
Most of those leaving the program were rejected during a trial
period lasting at least three months. More than 6,300 dropped out
after having their loans modified.
Another 340,000 homeowners, or 27 percent of those who started
the program, have received permanent loan modifications and are
making payments on time.
Experts say more borrowers are likely to drop out in the coming
months. Some homeowners who owe more on their loans than their
properties are worth are likely to conclude that paying an
oversized mortgage simply isn't worth the cost.
Even after their loans are modified, many borrowers are simply
stuck with too much debt -- from car loans to home equity loans to
"The majority of these modifications aren't going to be
successful," said Wayne Yamano, vice president of John Burns Real
Estate Consulting, a research firm in Irvine, Calif. "Even after
the permanent modification, you're still looking at a very high
Obama administration officials contend that borrowers are still
getting help -- even if they fail to qualify for the program. The
administration published statistics showing that nearly half of
borrowers who fell out of the program received an alternative loan
modification from their lender. About 7 percent fell into
Another option is a short sale -- one in which banks agree to
let borrowers sell their homes for less than they owe on their
A short sale results in a less severe hit to a borrower's credit
score, and is better for communities because homes are less likely
to be vandalized or fall into disrepair. To encourage more of those
sales, the Obama administration is giving $3,000 for moving
expenses to homeowners who complete such a sale or agree to turn
over the deed of the property to the lender.
Administration officials said their work on several fronts has
helped stabilize the housing market. They cited government efforts
to provide money for home loans, push down mortgage rates, and
provide a federal tax credit for buyers.
"There's no question that today's housing market is in
significantly better shape than anyone predicted 18 months ago,"
said Sean Donovan, Obama's housing secretary.
The mortgage modification was announced with great fanfare a
month after Obama took office.
It is designed to lower borrowers' monthly payments -- reducing
their mortgage rates to as low as 2 percent for five years and
extending loan terms to as long as 40 years. Borrowers who complete
the program are saving a median of $514 a month. Mortgage companies
get taxpayer incentives to reduce borrowers' monthly payments.