Meager mortgage modifications overshadowed by mounting foreclosures

August 6, 11:58 AMReal Estate News ExaminerBroderick Perkins

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Only a fraction of homeowners are benefiting from the $50 billion federal mortgage meltdown mitigation effort, because lenders' paltry efforts fall far short of turning the tide on the real estate crisis lenders helped create.

Lenders appear to be rationing mortgage modifications and the small number of loan workouts that do get through are being swallowed by a foreclosure pandemic.

Unless lenders pony up and get more homeowners into a loan they can afford, a prolonged recession in the housing sector will include an estimated 13 million foreclosures in the next five years, according to one report.

Both consumers and lenders are equally to blame for the housing crisis, but the government has pumped billions into the coffers of lenders, rather then the pockets of consumers.

The Obama administration's first "Servicer Performance Report" -- the Making Home Affordable program's effort at transparency -- reveals that as of July, only 9 percent of eligible borrowers had mortgage payments reduced with modified loans, according to the

A loan modification comes with a lower interest rate, extended payments or other terms designed to make a mortgage more affordable in order to keep struggling homeowners in their homes. A fraction of modifications come with a more appropriate loan balance reduction, which also enhances affordability.

The Home Affordable Modification Program (HAMP) launched in March.

Since then, 10 lenders had not changed a single mortgage and large banks that received billions in federal bailout money, including Bank of America and Wells Fargo, are lagging behind government expectations.

The report shows Bank of America modified just 4 percent of eligible loans, and Wells Fargo 6 percent. Wachovia, which was taken over by Wells Fargo in December, modified only 2 percent.

Some banks argue the numbers don't include modifications performed outside the HAMP program. Wells Fargo, for example, says it completed 220,000 modifications, in addition to the 20,000 created under HAMP.

The Center for Responsible Lending (CRL) concedes loan modifications are up from last year, but "the rapid growth of serious delinquencies and new foreclosure starts is swallowing modest gains in efforts by loan companies to fix the massive number of loans headed for foreclosure."

According to CRL, during the first quarter of this year, nearly 500,000 loan modifications were completed, but foreclosure starts and serious delinquencies during that period numbered nearly 3.5 million.

The center says unless there's serious intervention, foreclosures are on track to soar to 13 million during the next five years, and it's not just the foreclosed homeowner who'll suffer.

Critics say legal intervention, on a case-by-case basis, may be necessary because it's not just about homeowners losing homes.

In 2009 alone, 69 million homeowners living near foreclosures will see their wealth shrink as property values decline by $502 billion, CRL reports.

• See the first Making Home Affordable "Servicer Performance Report"
• Go to the Deadline Newsroom to get your Mortgage Modification Manual and stay abreast of modification news.
• Read the Real Estate News Examiner's update: Mortgage Meltdown