Obama’s Mortgage Help Program A Flop

Under President Obama’s program intended to help struggling homeowners avoid losing their property, more borrowers have had their trial reduced payment loans cancelled than have received permanent modifications, according to the Government Accountability Office (GAO).

In February 2009, the Treasury Department announced that by modifying troubled home  mortgages – i.e., reducing the monthly mortgage payments to 31 percent of their gross monthly income -- the Home Affordable Modification Program (HAMP) would help 3- to 4-million homeowners who were experiencing trouble paying off their home loans.

Almost two years later, HAMP, which offers assistance to homeowners through a cost-sharing arrangement with mortgage holders and investors to reduce to affordable levels the monthly mortgage payment amounts of those at risk of foreclosure, is facing tough challenges.

“The program had a slow start and has not performed as anticipated,” the GAO report noted, adding that “despite program changes that are intended to increase the number of mortgage loan modifications made under HAMP, more borrowers have had their trial modifications canceled than have received permanent modifications.”

From the beginning of the federal program in April 2009 through November 2010, 1.4 million loan modifications had been made under HAMP on a trial basis, the GAO said. However, of those, 729,000 trial loan payment reductions were cancelled. Fewer than 550,000 were converted to permanently modified loans.

“The number of new permanent modifications started each month increased from roughly 36,000 in December 2009 to more than 68,000 in April 2010 and then decreased to about 31,000 in November 2010,” stated GAO.

To be eligible to receive a permanent loan modification, a loan must cover a “single-family dwelling, owner-occupied, [and] primary residence” and the borrower must “successfully complete a 3-month trial modification period” and make mortgage payments on time. 

Trial home loan modifications started under the program peaked in October 2009, a few months after the program’s inception, but declined thereafter.

More here