Foreclosures high on Obama priority list |
| By Holden Lewis • Bankrate.com |
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Foreclosure prevention will stand near the top of Barack Obama's domestic priorities when he assumes the presidency. Obama has other housing-related items on his agenda, too. He says he wants to ease taxes on homeowners, and he inherits a controversial reform of the mortgage-closing process.
1. Foreclosure prevention
No one can guarantee success in the thorny task of reducing foreclosures. Obstacles stand in the way of getting government entities and private businesses to move in the same direction instead of working at cross purposes. The main way to prevent foreclosures is through mortgage modifications, such as rate reductions, forgiveness of principal and extending the ultimate payoff dates of loans.
During the campaign, Obama said his Treasury and Housing departments would "more aggressively modify the terms of mortgages." He said the feds would work with the states "to coordinate broad mortgage restructurings." People in the industry take this to mean that Obama wants government and business to draw up widely accepted rules to decide who gets a loan modification and who doesn't. That would constitute a break from the current system, in which loan-modification decisions are made case by case -- a time-consuming process.
Mortgage experts say it's necessary to devise a set of rules for mass modifications but that it will be fiendishly difficult to do. And that's just from a technical standpoint. Then there's the political angle: When it comes to who "deserves" a mortgage modification and who doesn't, most voters know it when they see it, even if they couldn't flowchart the decision. Any computerized, rules-based system would result in some widows losing their homes, and some rogues keeping theirs -- in both cases, undeservedly.
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"The entire industry is struggling with the right approach," says Carol Beaumier, executive vice president with the risk-consulting firm Protiviti, where she heads a task force working on the mass-modification conundrum. "Probably one of the complicating issues right now is trying to get a sense of where the new administration might go. So for any institution looking to do something voluntarily, it's a little bit of a balancing act."
Government and businesses have worked together on foreclosure prevention, with results varying from so-so to abysmal. The Department of Housing and Urban Development introduced a program, called FHA Secure, that would allow delinquent homeowners to refinance out of ARMs and into FHA-insured loans. HUD estimated that the program could help 240,000 families; only 661 families got FHA Secure loans in 2008. Another ballyhooed program, Hope for Homeowners, resulted in no loans -- zero -- in 2008. Congress is revising it.
The best-known public-private coalition is the Hope Now Alliance, which boasts 400 housing counselors taking an average of more than 3,000 phone calls daily. The alliance sends letters to homeowners who have fallen behind on their mortgage payments, and only one in five reply. "It does give you the magnitude of the noncontact borrower," executive director Faith Schwartz says.
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