obama loan program

The Obama administration had promised to improve the lot of the troubled homeowners. After assuming office it had come up with the Making Homes Affordable program. Under this plan, loans of the troubled homeowners will be modified.

So far, however, not much of a progress has been made on this front. About 131,030 loans have been reassessed on a three-month experimental basis. The homeowners are being given the option to pay the loan for three months after which it will be locked for five years.

The number per se is not bad but not enough when compared to the 3.5 million foreclosures expected by the year end. Also homeowners are facing extreme resistance from mortgage institutions. It has been reported that the financial institutions are not even returning phone calls.

When quizzed, the CEO of Overture Technologies, William Kelvie, says mortgage institutions are not equipped to handle loan rectification. He says that the industry has been dominated by some big players like Wells Fargo, JP Morgan Chase and Bank of America.

They are equipped to do some simple jobs like mortgage payment, paying taxes on homes et al. It also dealt with borrowers who fell behind on payments but it mainly pushed people to make their payments up-to-date or initiated foreclosures.

Revising loans and that too, thousands of them is a very complex process. The sheer numbers can be overwhelming, says CEO, Litton Loan Servicing, Larry B. Litton Jr. Many service companies are finding it difficult to tackle the large volume. Moreover, loan rectification involves much groundwork. They can never be done in one-size-fits-all manner.

Also many loans were written during the boom phase when borrowers did not have to provide income proof. Now service providers will find it difficult to address so many defaulters. Loans that were underwritten properly now have to redone again, because many borrowers are out of jobs and may not be in a position to pay the loans.

Institutions are not very sure if they will be able to handle this revised loan.

There are other reasons too behind the delay. Many borrowers prefer “self cure” and gets up-to-date with the mortgage. Hence, the bank prefers to wait to allow him the time to get current. Also, many loans that are being modified can default too as the rate of unemployment rises. In such a case, the service provider has not been able to avoid a foreclosure. He has merely put it off.

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