RealEstateEconomyWatch.com

Five months and 1,1 million foreclosures after President Obama announced the Making Home Affordable programs, the Administration has yet to identify a single borrower who has closed on a modified loan under the program, though at least one servicer reports approving 87,100 mods.

 Treasury launched the program with a $75 billion commitment to support loan modifications to help 3 to 4 million borrowers at risk of foreclosure keep their homes. It has until December 31, 2012 to meet that goal.  At this point in its life, the widely vilified Bush-era Hope for Homeowners program had helped at least 51 homeowners get modified loans and stay in their homes.

The refinancing part of the program seemsbe in better shape, but still far below expectations.  The program helps borrowers whose equity in their homes is too low to qualify for a conventional refinancing and whose loan is guaranteed by either Fannie Mae or Freddie Mac was recently expanded to include participation by borrowers who are current but up to 125 percent underwater on their mortgage

During the second quarter, Fannie and Freddie did about 1.8 million total refinancings. Refis by the GSEs under the Obama program, however, totaled only 80,000, a quarter of which are over 80 percent loan to value ratio.  In light of the low interest rates during April, May and June, the program’s achievements to date are less than impressive.  To meet the Administration’s self-set goal of refinancing 5 million at-risk homeowners by June 2010, Fannie and Freddie will have to ramp up from 20,000 to 400,000 a month.

The pressure is clearly rising and fingers are beginning to point.  If you can’t stand the heat, one favorite Washington tactic is to get out of the kitchen and take it on the road.  Late last month, HUD announced it was ramping up its efforts with a campaign starting in Miami and traveling to nine additional housing markets that have been hit hard by foreclosures, with the goal of “empowering local partners to connect homeowners with much needed relief under the Administration’s housing program,” whatever that means.

Renae Merle of the Washington Post reports this morning that Treasury Secretary Timothy F. Geithner and Shaun Donovan, secretary of the Department of Housing and Urban Development, publicly acknowledged the program has yet to gain traction.  Yesterday Geithner and Donovan in a tough two-page letter urged 25 banks participating in the program to put more resources behind the program.

The PR sucker punch from Treasury and HUD caught most big servicers by surprise but not JP Morgan Chase, who announced on June 30 that it has already approved 87,100 modifications under the government program and was reviewing more than 150,000 applications. Since January, the company says it has added 950 loan counselors and opened 27 homeownership centers where troubled borrowers can go for help.

Perhaps in response to growing public pressure evidenced by a recent New York Times editorial and stories in USA Today, Bloomberg, CNNMoney,  and elsewhere yesterday the administration announced it will begin issuing monthly reports by Aug. 4 detailing lenders’ performance, including how many modifications they have implemented. They will be judged by new criteria, such as how long it takes borrowers to get help over the phone and the accuracy of the information they are provided. Freddie Mac  is developing a “second look” program to audit the applications of borrowers who have been denied help under the program.

As tempers shorten among Administration officials responsible for the program and the lenders who have signed up to service it, there’s even more bad news on the foreclosure front. 

• Not only is the rate of new foreclosure filings apparently out of control, it will soon get worse. ForeclosureRepos.com reports REO activity is expected to spike in the coming months as foreclosure delays and moratoria implemented by various state laws come to an abrupt end. The foreclosure site reported that of the 5 states showing the biggest rise of foreclosures last month, the least amount was more than 12 percent above the previous month.
•  Another foreclosure site, ForeclosureDataOnline.com, reports its data shows that foreclosure levels continue to rise and are reaching record highs, particularly in states such as Michigan, California, and Florida.

 Just as the program modest beginnings are overwhelmed by a sea of new defaults, there is new evidence that it was not designed to address today’s root causes of foreclosure.  A new study by a team at the University of Chicago and Northwestern University released two weeks ago found that one our of four homeowners are walking away from their homes because they have lost so much value, not because the can’t make the monthly payments.

 ”Housing policy under the current administration has focused on reducing households’ cash flow problems in response to the housing crisis, but no onehas addressed the negative equity issue as part of public policy regarding housing,” said Paola Sapienza of the Kellogg School of Management at Northwestern University, the study’s leader. “We’re in a completely different economic environment today, where for the first time since the Great Depression millions of Americans have mortgage loans that exceed the value of their home.”

In addition to negative equity, unemployment has clearly become a greater factor in causing defaults than it was at the time the program was design, and the impact of subprime loans as a cause of defaults has lessened.  When one or more breadwinner is out of work, monthly payments cannot be lowered enough to prevent defaults. Since the first of the year, the shift from subprime to prime foreclosures has been pronounced.  The foreclosure rate on prime fixed-rate loans has doubled in the last year, and, for the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures. In addition, almost half of the overall increase in foreclosure starts in the first quarter was due to the increase in prime fixed-rate loans.

 A slow start, a tidal wave of defaults and new doubts about the program’s ability to address shifting economic realities…the honeymoon certainly is over for Making Home Affordable and its reckoning time is near.