That's why the Obama administration's anti-foreclosure program, Making Home Affordable, is so critical. It's also gotten off to a slow start -- too slow. The administration took a good step yesterday by releasing the most comprehensive statistics to date about the program's efforts to modify the loans of borrowers in danger of foreclosure. It also announced new metrics to measure its success. But those statistics point to what we've known for all too long: The administration needs to take a harder line on bank participation in the program and modification practices as a whole.
The Home Affordable Modification Program (HAMP), which began in March, is the half of MHA that uses TARP funding to encourage mortgage servicers to modify loans in danger of foreclosure. Some 406,542 homeowners have received modification offers from the government. Of these, 235,247 homeowners have accepted the offer and begun making decreased monthly payments, and 171,295 homeowners have either refused their offers or haven't begun paying their new mortgages yet.
But the key numbers are these: Treasury estimates that 2.7 million Americans are eligible to have their loans modified and are covered by servicers participating in HAMP, of these, only 15 percent have even been offered help, and only 9 percent have received it. That's simply not good enough.
Economists expect 6 million to 8 million people to lose their homes to foreclosure over the next three years. HAMP's goal is to help 3 million to 4 million avoid that fate. Treasury officials are confident that they can reach this goal by pressuring servicers to increase the speed at which modifications have been performed. There has been improvement in last month; while only 50,000 modifications were underway after the first three months of the plan, in the last 30 days 185,247 modifications have begun.
But more pressure from the government is required. Thus far, even the firm that has modified the largest share of its eligible borrowers -- Saxon Mortgage Services, Inc. -- has only made one-quarter of all potential modifications, and Saxon has significantly fewer loans than institutions like Wells Fargo, Bank of America, and American Home Mortgage Servicing. That last institution, AHMS, only recently agreed to participate in the program after ACORN, the national community organizing coalition, launched a campaign to pressure all mortgage servicers to participate in the program (right now, the participants only cover about 85 percent of American mortgages).
ACORN has identified two major firms who have still not agreed to take part in HAMP: Goldman Sachs subsidiary Litton Loan Services and Barclay subsidiary HomeEq. Calling them the "Homewrecker Two," ACORN has organized protests designed to shame the banks into acting in the public interest. ACORN is also calling for investigation into reports that participating banks are ignoring HAMP standards in their modifications. Treasury promises that Freddie Mac, the government-owned lender that is in charge of compliance with the program, will be conducting random audits to prevent banks from taking advantage of desperate borrowers. And ACORN has gotten results -- the Homewrecker Two were originally the Homewrecker Four when the campaign got started; two other lenders gave in and joined the program.
It seems Treasury took notice of this success; the decision to break down bank participation rates in a public document has been described by in-the-know observers as an effort to "name and shame" the slower-moving banks. Some banks are still performing loan modifications that don't meet MHA standards -- modifications that often hurt financially troubled borrowers even more -- and reporting those along with MHA modifications to inflate their participation. This new report shows exactly how many government-approved modifications the banks have made.
Last month, I wrote that Treasury needs better metrics to determine if Making Home Affordable is succeeding. Treasury has done just that, announcing a new goal of 500,000 modifications started by Nov. 1. It's a low-ball goal (remember, they did nearly 200,000 in the last month and have only 250,000 left to perform in the next three). But it's not enough. It's time to make the goal bigger and the consequences of not helping borrowers harder for banks to deal with.
Yesterday morning, Assistant Treasury Secretary Michael Barr told reporters that Treasury was not yet ready to consider major adjustments to the modification program. But the only way to pressure banks is to make clear when change is coming. Here's my suggestion: The banks should modify 1 million mortgages by Nov. 1 -- a doable goal if they continue to ramp up their operations and new servicers join -- or Treasury will give bankruptcy loan-modification legislation (killed by the financial-service industry but now regaining support on Capitol Hill) its full backing and institute new MHA requirements. Beefing up MHA should include measures that would allow homeowners to remain in their home as rent-paying tenants, and provisions to reduce the principal of mortgages rather than modifying the terms of the loan.
Treasury is learning to be more aggressive, thanks in good part to pressure from the left -- just look at Secretary Timothy Geithner's recent willingness to upbraid recalcitrant regulators. The banks have said they can pursue the public interest without sanctions. Now administration officials need to make them prove it or pay the price.
