Making Obama's Foreclosure Plan Work

Since March 4th 2009 when the Obama Administration announced the "Making Homes Affordable" (MHA) program, we have all been waiting for the plan to be implemented in a manner and scale that would have a positive impact on stabilizing real estate values.

As was seen from the release of the GAO report in August, lenders/servicers have not been, or in some cases have been unwilling to provide the relief that the program can offer in order to have a major impact on the foreclosure crisis. We all must remember that the MHA program and other efforts put forth by the Treasury Dept and GSEs to stabilize real estate values are the key to the Administration’s overall economic recovery program. If we fail to do what is needed to reduce inventory of below market properties, and do not provide relief to struggling homeowners, the credit crunch will continue or more likely become worse. It is unwise for anyone to assume that the situation is improving or has any chance of improving if MHA and other programs are not implemented on a major scale as quickly as possible. According to numbers quoted by Senator Durbin, 10,000 homes are going into foreclosure daily in the United States.

When we look at the numbers released from the GAO we see 290,000 modifications that have been completed by the servicers to date. Another 400,000 offers for modifications have been sent to troubled homeowners from all the servicers combined. We must remember that the 290,000 are provisional modifications that have not yet been fully approved by the servicer. We were told the reason for the three month "Trial Period" was to make sure the homeowner was capable of making the new monthly payment. In fact, the reason for the trial period is to give the servicers more time to verify income and expenses. As we are now seeing, homeowners who have been given a trial period and making the new payment are being told that even though their three months are up their loan has still not been decided on and they are to continue to make the provisional payment. This has one positive effect...keeping potential below market inventory off the market, which is good but only delays inevitable.

Do we know why MHA is not being implemented on a much larger scale?

Different people have different opinions; the servicers do not have the capacity, the servicers not having the authority with the investor under the PSA, or the servicers just wanting to increase profits from foreclosure fees. I imagine that all of the above have some truth supporting different opinions, but conversations with people from the lender/servicing community support the opinion for the lack of success is trained manpower in the numbers that are required to have a major impact. The largest real estate transaction in the history of the world, $75bn, MHA was put on the shoulders of a business model that was not, and is still not capable of completing the task in the time frames dictated by the crisis.

MHA has to be a national effort, we need the Treasury, GSE's, lender/servicers, the non-profit counselors and yes, those people that know how to underwrite, know what a front and back end DTI is. Professionals that have been working in the lending industry for years , and contrary to some opinions, there are thousands of them out there looking for work that are not crooks. With MHA we now have underwriting guidelines and a program that can not be influenced by a more lucrative sub-prime mortgage product and a modification fee that will not be paid by the homeowner. If we are going to implement a program why not have people like originators, loan processor and HUD-DE with years of experience doing some of the work.

The question is one of trust. For nine months our trade group has been lobbying Congress and the GSE's to use such a work force but the question is always asked; how can we trust you guys, the mortgage industry that sold all these bad mortgage products and the modification industry that is just out there to scam the trouble homeowner?

We all know that the perception being portrayed in both instances is inaccurate in most cases however the perception persists. There is a way to calm those fears and give comfort to Congress, GSE's and the lenders/servicers'. With the use of TARP funds; an orderly, transparent and self regulating trade group to monitor the use of these professional to correctly implement MHA is a logical option. This organization with a full infrastructure does exist and the right people are listening. A single web based platform to control, and monitor the program, online training course for MHA guideline, third party quality control program, and a criminal background check for all companies and employees is in place. These components’ were needed to give all parties involved the level of trust they require.

This trade group is and will continue to aggregate professional under one structure. It will not solve the foreclosure problem or be capable of completing the millions of modifications required, but in a national effort to stabilize real estate value all hands on deck are needed. A strong lobby effort should and will continue, but support is requested from industry professional. The more trained and certified professional in the group the more powerful the impact on Washington. MHA can work but it needs a chance to be accurately and quickly implemented by professionals.

Steven Gillan

Executive Director

AAHMP.