IF It’s Free Then You Must Flee
IF It’s Free Then You Must Flee
Loan Modifications: Government Programs to Make a Small Dent in the Problem
The Obama Administration’s “Housing Affordability and Stability Plan” (HASP) was announced with much fanfare as its guidelines were rolled out in late February. The plan included $75 billion for incentive payments for lenders and loan servicers that either participated voluntarily or were mandated into the program as recipients of FSA/TARP funds, incentives to homeowners that could make payments on time for year, and payments that would not be greater than 31% of household income. At the time, administration officials and The Treasury Department estimated that the plan would help between 4 and 5 million homeowners stay in their homes and avoid foreclosure.
The plan is off to a very modest start according to Treasury spokeswoman, Jenni Engebretsen. In a recent New York Times article she estimated that the total of loan modifications under the plan were “more than 10,000 but fewer than 55,000.” A cynic might say that she’s probably telling the truth and that the number is probably much closer to the low end of the range provided. When Wilt Chamberlain scored 100 points in one game for the Philadelphia 76’ers one of his teammates quipped in the locker room afterward, “I’ll always remember this game as the night Wilt and I combined to score 102 points.” Engebretsen’s estimate is reminiscent of that kind of truth-telling.
Considering RealtyTrac recently released a report which showed foreclosure filings, default notices, auction sale notices, and bank repossessions totaled 342,038 for the month of April, the Treasury’s estimates for completed loan modifications do not give cause for celebration. Homeowners, acting at the behest of Obama’s “If you have to pay, walk away” sound bite are not having any more luck doing their own loan modifications than they were before the announcement of HASP. The trickle of loan modifications being done through government sanctioned venues is simply nowhere near enough. Alan Ruskin, chief international strategist at RBS Greenwich Capital put it more succinctly saying, “I don’t think there’s any chance of government measures making more than a small dent.”
Recent indications show that the economy isn’t going to provide any kind of tail-wind any time soon. Foreclosure activity increased throughout 2008 as job losses averaged 256,000 per month. That rate has increased to a monthly average of 665,000 job losses per month for the first four months of 2009. Foreclosures are likely to increase under anything close to those numbers, deepening the workload of modification processors even more. With all that in mind, homeowners may want to hire professional representation to navigate an obstacle course that will only become more complicated as foreclosures increase. Additionally, while hiring an attorney, homeowners may want to re-think Obama’s sound bite and instead go with “If it’s free, then you must flee”
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