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December 2011
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Since the housing market collapsed in 2007, the government, banks and mortgage lenders have created hundreds of loan modification programs in an effort to stem the foreclosure crisis and to get the U.S. economy back on track. The Obama administration’s initial mortgage relief programs, launched in early 2009, were intended to prevent 7 million to 9 million home foreclosure. So far, they have been able to extend mortgage help to nearly 2 million, and not all of those are out of risk of a loan default. Many homeowners have struggled to refinance a bad credit mortgage because they don’t have the equity or they are unable to meet the credit score requirements because of delinquent mortgage payment or mounting credit card debt.

Mortgage Modification Programs with Good Intentions

Many of the mortgage loan modification programs that begun later also have faltered. One loan mod program 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 money that was not distributed had to be returned to the U.S. Treasury.

As of November 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-partisan Congressional Budget Office estimated in March.

The Obama administration announced new guidelines with the HARP 2.0 that promised no Loan to Value restrictions. This home refinance program is only available to underwater borrowers who happen to have a mortgage owned by Fannie Mae or Freddie Mac.

Meanwhile, 2.5 million homes have been lost to foreclosure since 2009, an additional 4 million are in the home foreclosure process or seriously delinquent and home prices are still falling in much of the U.S., shrinking household wealth for millions of Americans. “Every loan modification program has fallen far short of goals. I can’t think of one that’s been largely successful,” says John Dodds, director of the Philadelphia Unemployment Project, a nonprofit that’s been involved in foreclosure prevention for decades.

The Obama administration’s programs were hampered by failed refinance options and loan modification program flaws, their reliance on a home loan industry overwhelmed by the fallout from a historic collapse in home prices and a brutally extended housing downturn. Nor could they always overcome the conflicting interests of borrowers with too much debt, mortgage lenders unwilling to surrender profits and home loan servicers with sometimes greater financial incentives to foreclose on loans.

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