Obama Foreclosure Rescue Plan Has Helped Over 650,000

The Treasury Department reported today that over 650,000 people have been entered into the government’s trial loan modification program since its inception in February of this year. The goal of the program has been to allow people facing foreclosure to remain in their homes dependent on what they can afford to pay based on their income. The number of people helped now represents 20% of homeowners who are at least 60 days behind in their payments and thus eligible for the program. This number is up from the 16% that were being helped last month.

What these numbers show is that the program is indeed helping people in this country.  CNNMoney has a very informative article on these numbers entitled “Obama Home Rescue: 650,000 Get Help”. This article though talks about how some experts say that the programs numbers are misleading and that the amount of people its helping when compared to the number of foreclosures, is actually insignificant.

Despite the progress, housing counselors say the number of people falling into foreclosure vastly exceeds the ranks getting assistance. The number of filings hit a record high of 937,840 in the third quarter, according to RealtyTrac, an online marketer of foreclosed homes. That’s a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.

The $75 billion Obama plan is “lagging behind the massive number of foreclosures that continue to pile up,” said John Taylor, head of the National Community Reinvestment Coalition.

The government though insists that the program is running just as it intended and helping people at the expected rate. At its inception the program was intended to help 4 million people and they insist that its still on track.

The way the program works is by modifying the terms of people’s mortgages to payments of no more than 31% of their pre-tax income. Its designed to help people who’s situations have changed to now be able to stay in their homes. It is not intended to help the unemployed. If you’ve lost your job and have no source of income, then the program really can’t do anything for you.

The banks that hold these mortgages aren’t simply looking to gift you your home. There has to be some incentive for these banks to modify your mortgage. That incentive I’m guessing would have to be that once things get straightened out there is hopes that people will get back on track. Its a fact as well that a lot of these people are now paying mortgages that far exceed the value of the house. In cases like that its more in the best interests of the banks to keep the mortgage than sell the house at a way reduced auction price on an already reduced value.

Now the program does rely on outside loan servicers to function and there have been many complaints about these companies performance. Things such as the application process being too complicated have the banks left being accused of not moving fast enough to satisfy the demand.

At Neighborhood Housing Services of Chicago, only about one in four people are getting help from the Obama program, said Michael van Zalingen, director of homeownership services.

About 30% are not being put into trial modifications for reasons including too little income or too much equity in their homes, van Zalingen said. The rest are in limbo, mainly because the banks say their applications are incomplete.

Certainly, banks have quickened the pace, van Zalingen said. His group secured 180 modifications for clients in the second quarter, but was able to help 400 in the third quarter. He expects that a total of 1,000 clients will be put into trial modifications by year’s end.

Still, the modifications are not keeping pace, van Zalingen said. NHS-Chicago will see 3,000 to 3,500 distressed borrowers seek help this year. “Loan servicers are offering trial modifications more often, but not anything like the need or demand,” he said.

The numbers from the different banks vary quite a bit. Saxon Mortgage Services leads the way putting 44% of their borrowers who are eligible for the program into these trial loan modifications. While Bank of America, which is the institution with the most eligible people, lags far behind at only 14% of eligible people enrolled.

The part that needs to be looked into a whole lot more is the fact that these are only “trial” modifications. The Obama plan calls for these modifications to be tested out for a 5 month period. It was originally only 3 months before the Treasury decided to lengthen it in September. So what happens to these people after their trial period? How many of these modifications are then being made permanent? Those are big questions that remain to be answered. The Treasury has said that it will start including statistics on how many are made permanent in its report sometime within the next couple months. Those are going to be the numbers that really show if the program is working. After all, if those numbers are low than all we’re doing here is  a whole lot of work to simply delay the inevitable.