What went wrong with foreclosure aid programs?

Julie Schmit, USA TODAY

Steven and Lisa Maultsby lost their Mississippi home to foreclosure this year.

At the time, they thought they were being reviewed for a loan modification through the U.S. government’s foreclosure-prevention program.

A Realtor knocking on their door to tell them to vacate told them otherwise.

“I’m bitter,” says Steven Maultsby, 51, who works with undersea robots in the oil industry. “We did everything they told us to do.”

The Maultsbys are angry not only at their mortgage company, but also at the government, and they’re two voices among a discontented chorus.

The Obama administration’s initial foreclosure-prevention programs, launched in early 2009, were intended to help 7 million to 9 million people. So far, they’ve aided about 2 million, and not all of those are out of foreclosure danger.

Programs begun later have also faltered. One intended to help at least 500,000 has helped just a few hundred a year after its launch. Another initiative to extend $1 billion to help the jobless or underemployed avoid foreclosure ended in September, obligating less than half of its funds. The unused money went back to theU.S. Treasury.

As of Nov. 30, the government had spent just $2.8 billion of the $46 billion war chest it had in 2009 to devote to the housing crisis, the Treasury Department says. More has been committed, but only $13 billion will ultimately be spent, the non-partisanCongressional Budget Office estimated in March.

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Foreclosure Firms Blamed For ‘Inexcusable Breakdowns’ By Obama Administration

Martin Crutsinger, AP via Huffington Post

An Obama administration official says a preliminary investigation into the foreclosure process has found inexcusable breakdowns in the basic controls mortgage lenders should have been using.

Assistant Treasury Secretary Michael Barr said Tuesday that a foreclosure task force composed of 11 federal agencies had found serious problems in the way home foreclosures were being handled.

Barr told a new financial stability council headed by Treasury Secretary Timothy Geithner that the task force hoped to have a set of recommended improvements ready by late January.

Barr said the goal of the task force was to hold banks accountable for fixing the problems that have been found and making sure that individuals who have been harmed are given a way to seek redress.

Bar said the investigation had found “widespread and, in our judgment, inexcusable breakdowns in basic controls. The problems must be fixed.”

Barr was delivered his comments before the Financial Stability Oversight Council. The group of top federal officials including Geithner and Federal Reserve Chairman Ben Bernanke was holding its second meeting.

The panel was created by the Dodd-Frank legislation passed by Congress last summer in an effort to fix flaws in current government regulation that were exposed by the financial crisis that struck with force two years ago.

Read more here: http://www.huffingtonpost.com/2010/11/23/administration-faults-fir_n_787764.html

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No Need For National Foreclosure Moratorium Says White House

Alan Fram, AP via Huffington Post

A top White House adviser questioned the need Sunday for a blanket stoppage of all home foreclosures, even as pressure grows on the Obama administration to do something about mounting evidence that banks have used inaccurate documents to evict homeowners.

“It is a serious problem,” said David Axelrod, who contended that the flawed paperwork is hurting the nation’s housing market as well as lending institutions. But he added, “I’m not sure about a national moratorium because there are in fact valid foreclosures that probably should go forward” because their documents are accurate.

Axelrod said the administration is pressing lenders to accelerate their reviews of foreclosures to determine which ones have flawed documentation.

“Our hope is this moves rapidly and that this gets unwound very, very quickly,” he said.

With the reeling economy already the top issue on voters’ minds, the doubts raised over foreclosures and evictions are becoming a political issue with the approach of Nov. 2 elections.

Underscoring those pressures, two leading lawmakers took opposing stances on the wisdom of a moratorium.

Rep. Debbie Wasserman Schultz, D-Fla., a top House Democrat, said she backed a foreclosure moratorium and government talks with the banking industry to concoct ways to let lenders reshape troubled mortgages. She said the foreclosure problem has been “extremely vexing” in her state.

The No. 2 House Republican, Rep. Eric Cantor of Virginia, said a national moratorium would remove the protections that lenders need.

“You’re going to shut down the housing industry” with a national stoppage, Cantor said. “People have to take responsibility for themselves.”

Read more here: http://www.huffingtonpost.com/2010/10/10/foreclosure-moratorium-obama-administration_n_757356.html

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Taxpayer-Owned Fannie Mae Punishing Struggling Homeowners

Shahien Nasiripour, Huffington Post

Taxpayer-owned mortgage giant Fannie Mae is targeting families by going after struggling homeowners who strategically default on their mortgage, the firm announced Wednesday.

A default is considered strategic when homeowners have the capacity to pay, yet choose to walk away from their mortgage. The trigger, researchers say, is negative equity: When the value of a home is less than what the lender is owed on it, borrowers are more likely to strategically default.

About 11.3 million homeowners with a mortgage, or 24 percent, owe more on their mortgage than the home is worth, according to real estate research firm CoreLogic. Another 2.3 million have less than 5 percent equity in their homes. All told, about 29 percent of all homeowners with a mortgage are either underwater or very close to it. The firm estimates that the typical underwater homeowner won’t return to positive equity until late 2015 or early 2016.

And Fannie Mae, an arm of the federal government and a big part of the Obama administration’s housing policy, wants to make sure that if struggling families walk away, they suffer for it.

Homeowners who strategically default or did not work “in good faith” to avert foreclosure through other means will be ineligible for new Fannie Mae-backed mortgages for seven years. The firm said it will also pursue homeowners in court, seeking so-called “deficiency judgments” to recoup outstanding debt by seizing borrowers’ other assets. Thirty-nine states do not limit the ability of lenders to recover what they’re owed.

Fannie Mae said that next month the firm “will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.”

“Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting,” Terence Edwards, Fannie’s executive vice president for credit portfolio management, said in a statement.

Strategic defaults among homeowners have been on the rise. More than a million homeowners went that route last year, nearly double the amount in 2008 and more than four times the level in 2007, according to a recent analysis by the credit reporting company Experian and Oliver Wyman, a management consulting firm. A study by a team of academics from the University of Chicago and Northwestern University estimated that nearly a third of home mortgage defaults in March were strategic. The deeper underwater homeowners are, the more likely they are to walk away from their mortgage, the researchers noted.

Earlier this month, the House of Representatives passed a bill barring strategic defaulters from obtaining home mortgages backed by the Federal Housing Administration. The agency guarantees nearly one in four new mortgages.

“I can’t help but notice that every group now frantically calling for tough penalties for homeowners who walk away was virulently opposed to judicial modification of mortgages in bankruptcy,” Rep. Brad Miller, a North Carolina Democrat, told the Huffington Post.

Bank of America and Citigroup, the nation’s largest and third-largest banks by assets, respectively, support changing existing law to give federal judges the power to modify mortgages in bankruptcy, otherwise known as “cramdown.” Proponents argue that if homeowners were able to modify their mortgages in bankruptcy, the number of strategic defaults would substantially decrease, if not nosedive.

About 3 million homes will receive foreclosure notices this year, real estate research firm RealtyTrac estimates. More than 1 million will be repossessed by lenders, adding to the nearly 2.2 million homes that lenders took over from 2007 to 2009.

Fannie Mae and its sister firm Freddie Mac guarantee nearly three out of every four new mortgages, according to leading industry publication Inside Mortgage Finance. The two firms control about $5.5 trillion in home mortgages, according to their federal regulator. That’s nearly half of all outstanding mortgage debt in the U.S. Their share of the mortgage market is nearly double what it was 20 years ago.

Read more here: http://www.huffingtonpost.com/2010/06/23/fannie-mae-strategic-default_n_623562.html

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