Obama Foreclosure Prevention Program Receiving Mixed Grades

President Obama's program to ease the foreclosure crisis through loan modifications

continued to disappoint in July, with just 37,000 homeowners qualifying and receiving a modification with permanently lowered payments. It was the smallest number of permanent modifications awarded in any month under the program since it began last year. By comparison, there were just over 50,000 loan modifications received in June. In total, the program has helped over 434,000 struggling homeowners to modify their loans.

To date, just under 13,000 modifications have been canceled, most because the homeowner has missed three straight payments. A growing number of cancellations has been the main problem facing the often-criticized $75 billion Home Affordable Modification Program. Since the program began last year, almost half of homeowners entering the program eventually dropped out. The program's ineffectiveness comes at a time when the housing market is struggling to recover and could really use an effective foreclosure prevention program.

There were a total of almost 270,000 foreclosures in the second quarter according to RealtyTrac, a new record-high. The number represents a jump of 38 percent from 2009's first quarter. Home sales in Southern California in July, meanwhile, fell by 21.5 percent from the same month a year ago. Industry insiders say that while it appears there has been some level of stabilization in the market, there is still a long ways to go in terms of a housing recovery.

The number of new, temporary mortgage modifications under the program slowed down also in July, with the total increasing 1.4 percent to 1.4 million. Just under half of the 3 month trial modifications awarded under the program since it began have been canceled. The total number of cancellations under the program rose by 85 percent from June to July.

Experts are predicting the cancellations will continue as mortgage companies work through backlogs of earlier loans modifications that were awarded without documentation. Those modifications were awarded last year based on stated income to stem the tide of foreclosures. Many of those homeowners have been awarded private modifications through their lenders acting independently, not under the shell of the Obama administration's program. The program essentially awards cash incentives to loan providers for modifying the loans of struggling homeowners, though they don't receive the incentives until the modifications become permanent.

An Administration official says the real estate market has significantly stabilized since last January, when President Obama took office. He also said that homeowners who had received permanent modifications on their home loans were enjoying a median reduction in their monthly payments of 35 percent, which translates to more than $500 per month.

The Los Angeles metropolitan area continues to be the area benefiting most under the modification program, with 44,600 homeowners receiving a modification in July, or about 6.5 percent of the total awarded across the nation.

Obama Foreclosure Prevention Program Receiving Mixed Grades

By: Ron Parks

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