WASHINGTON (AP) — Hundreds of thousands of homeowners are in limbo waiting to find out if they will be accepted for the Obama administration's foreclosure prevention program.
Nearly 1.1 million borrowers have enrolled in the program since it started a year ago, but so far only about 170,000 have completed the application process, the government said Friday.
At that rate, just 16 percent, the program will have a minimal effect on the foreclosure crisis. And many analysts warn that the majority of borrowers will never complete the process — or fall behind again.
To receive a permanent loan modification, homeowners need to make three payments and provide proof of their income, plus a letter documenting their financial hardship. To date, about 90,000 borrowers have dropped out.
The program is designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years.
To entice mortgage companies to participate, the government has set aside $75 billion in subsidies, though less than 1 percent has been spent.
Homeowners in two California metro areas — Los Angeles and Riverside — have received the most help, with a combined 18,000 homeowners receiving permanent modifications. But only 3,900 borrowers in Las Vegas had completed the program as of last month, a dismal showing in a city hard-hit by the foreclosure crisis.
Housing counselors complain that many homeowners are forced to wait many months for a decision.
Allen Pierson, 65, of Alton, Ill., and his wife have been waiting since last summer, when they enrolled in the program and saw their monthly payment drop by about $100 to around $1,040. They needed the help because they were barely scraping by after Pierson retired early from his manufacturing job.
They have yet to be approved for a permanent modification, despite months of effort by their housing counselor, Clarissa Gaff of Land of Lincoln Legal Assistance Foundation. She describes the process as "endless" and "Kafka-esque" — involving more than 70 hours of work.
Kevin Waetke, a Wells Fargo spokesman, acknowledged that "the modification process is complex and, at times, can result in poor two-way communication and delays." He said the company is continuing to work with the Piersons.
Wells Fargo says about half of the borrowers who complete the trial phase are able to complete the process. About 30 percent don't qualify under the rules, and another 20 percent don't return all of the required documents.
Another reason for the delays is that lenders are double-checking calculations on denied applications, added Meg Reilly, a Treasury Department spokeswoman
To reduce rampant problems, there have been talks in the nation's capital about how to make the program more effective.
The best solution, many analysts say, is to reduce the total mortgage amount for borrowers who owe far more on their home loans than their homes are worth. But Treasury officials are reluctant to subsidize such an effort with taxpayer money.
Nevertheless, some investors in mortgage-backed securities say they are willing to reduce principal balances, even without a government incentive.
"We're in a situation where the needs of the investor and the needs of the homeowner are very much aligned," said Micah Green, a lobbyist for a coalition of hedge funds and mortgage investors.
He recommends those loans could be refinanced and insured by the Federal Housing Administration. But that would put the risk of future defaults on taxpayers.
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