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Obama’s Mortgage Plan Warning
The Obama Administration’s $75 billion foreclosure prevention program saw just 12% of homeowner participation as of late 2009, with nearly 1 in 12 either in foreclosure or having fallen 90 days or more past due. A coming government paperwork submission deadline for homeowners currently accessing the federal foreclosure prevention plan could disqualify thousands. Of the 900,000 mortgagees that have attempted to enter the program on a trail basis, only 7 percent have actually been granted permanent modifications according to the Treasury Department.
To enter the federal foreclosure prevention plan, mortgagees must present a hardship affidavit, along with all other mandatory paperwork, plus make three consecutive god-faith payments to further qualify for a long-term mortgage modification. But an estimated 15 percent of homeowners attempting to access the Administration’s foreclosure prevention program are highly unlikely to be able to meet the terms of the modification.
The program, launched in February 2009, has been laden with government red-tape; as a result, many banks have extended provisional term modifications verbally but have difficulty completing and submitting requisite documents to formally finalize the modification. Mortgagees are therefore turning to bankruptcy protection, short sales, transferring a deed-in-lieu or are electing to simply walk away.
Though the Obama Administration has extended the paperwork submission deadline to January 31st, Assistant Treasury Secretary Michael Barr has stated the new deadline will not be further extended. As of December 2009, over 46 thousand mortgage modifications have been formally approved but await the mortgagee’s signature, while nearly 67 thousand of qualified homeowners have already received modifications.
According to the Treasury Department, approximately 25 percent of borrowers that have qualified trial modifications will not remain in the program because of an inability to make the required three payment provision. Of those borrowers granted a mortgage modification, average monthly payments have been reduced from over $1,400 to $830.
Wells Fargo, J.P. Morgan Chase, Bank of America and Citigroup have a combined total of 23,746 successful permanent mortgage modifications with still another 31,664 modifications pending. But a full 10 percent of Wells Fargo customers that qualified for provision relief and have made the three trial period payments have not submitted the necessary documentation, while approximately 15 percent have provided only partial documentation, in either case, those borrowers are not likely to meet the January 31st deadline set by the Obama Administration; an estimated 50 percent of homeowners entering Wells Fargo’s trial modification program to eventually receive a permanent modification.
Though the administration asserts their foreclosure prevention program will benefit as many as 4 million homeowners and is contemplating more assistance for borrowers and incentives for banks to reduce the level of foreclosure to aid homeowners and financial institutions alike. A conversion drive has already been launched by the administration to aid in increasing approved mortgage modifications. More plans to aid borrowers are in the works, but the administration has yet to make public specifics. Borrowers that are unemployed or underemployed are likely to be included in future provisions, but must also meet minimum standards.
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