From the Financial Times, by Shahien Nasiripour in New York
Homeowners across the country struggle to be responsible citizens and make timely payments on their home mortgages. For millions, this is a priority and as a result, other discretionary uses of their money get set set aside. The vacation trip, the weekly visit to a nice restaurant, even a new car, much of the money that would otherwise be spent here goes to the bank instead. The bank, in turn, may be making a nice profit, and keeping the money in cash. All this means less money circulating, no one being hired, and the crisis continues.
Elizabeth Duke, a Federal Reserve governor, called for fresh government action to help troubled homeowners recently as the number of distressed borrowers entering the administration’s primary foreclosure-prevention scheme fell to a two-year low.
President Obama, pushing hard to persuade Congress to create new jobs, is also expected to announce proposals to help the housing market recover.
Some 4m homeowners are eligible for the administration’s mortgage refinance scheme, the Home Affordable Refinance Program (HAMP), but only about 800,000 have taken advantage, Ms Duke said in a speech in Washington.
“Finding different approaches to the policies that are hindering refinancing would likely provide some support to the economic recovery, while improving the circumstances of homeowners and reducing the overall level of credit risk borne by the various holders of the risk,” she said.
Ms Duke said that high up-front fees for borrowers wishing to refinance and the reluctance of lenders to originate new mortgages, which could expose them to litigation risk from poor underwriting, were among the impediments.
While the administration’s refinance initiative struggles, its modification program is faring no better. More than 14,000 troubled borrowers began making reduced mortgage payments under HAMP in July, the lowest number of new entrants since April 2009, according to Treasury data published on Thursday.
The program was launched in March 2009, with the intention of lowering monthly payments for up to 4m homeowners. More than two years in, fewer than 800,000 borrowers are making smaller payments.
The number of homeowners entering the program has steadily declined over the past six months. About 33,000 borrowers began trial programs in February. More than 1m homeowners were eligible for the program as of last month.
While the program continues to reach far fewer people than initially expected, the White House – which on Thursday acknowledged the “continued fragility” of US housing – faces fresh challenges posed by the worsening finances of US homeowners.
Newly delinquent home loans are on the rise, according to the Mortgage Bankers Association. The number of borrowers who missed one payment rose last quarter from the period ending in March. The trade group linked the rising number of delinquencies to the rising unemployment rate.
The number of reworked mortgages outside the administration’s programs has also fallen, according to Hope Now, an industry group. There were 21 per cent fewer modifications last quarter compared with the previous period, ending in March.
An administration official said the White House remained committed to helping distressed homeowners. It has previously said that its programs had been successful in stopping a sharper deterioration of the housing market.
Hamp aims to reduce payments by paying mortgage servicers, homeowners and investors for successful loan modifications. The initiative has been dogged by inadequate servicing practices by the companies that dominate the US mortgage market.
In response, the Treasury recently began withholding payments to Wells Fargo, Bank of America and JPMorgan Chase, the three biggest servicers who collectively process nearly half of all home loans. All three needed “substantial improvement”, the agency said earlier this year.
Wells Fargo has since improved its practices and will receive about $21m in withheld payments, the Treasury said. But BofA and JPMorgan again failed to meet benchmarks and the department will continue to withhold about $18m from BofA and $28m from JPMorgan. Both companies said they continued to improve their operations.